Public spending, public control

Last month's budget left people in the back rooms of our public services under intense scrutiny as they become the first target of the government's drastic budget cuts.
Unlike the bailed-out bankers who caused the economic crisis in the first place, those delivering public services are being held to account for every move they make and every penny they spend.
But these "back office" staff are not passive victims of New Labour's inconsistencies. In Newcastle, these public servants have developed a new democratic model for service delivery and principles of democratic control that could also provide lessons for the principles which should drive public control over the banks.
The Newcastle story starts with a strong union-led campaign (pdf) against outsourcing a £250m contract for its back-office IT and related services. The campaign, which won the backing of both Labour and Lib Dem councillors, proposed a joint staff/management strategy to transform relevant council departments, simultaneously making savings and improving the quality of services.
The council achieved these in-house through a business model based on maximising public benefit, rather than private profit – all the savings were re-allocated to social care services. The management's approach was egalitarian; they saw their role on coaching and supporting staff rather than commanding them. They eliminated traditional hierarchies, pushed initiative and responsibility away from the centre and created a culture of collaboration across departments.
The process was driven by positive engagement with unions that provided assurances for staff – including a commitment to avoid compulsory redundancies – and the opportunity for workers at every level to be the key players in the process of change, sharing their knowledge and creativity, without fear.
Keeping the work "in-house" has had many advantages. Two important ones were, first, to enable the council to release creativity of its staff and the possibility of real collaboration across council departments and, second, allowing staff and managers could learn and change as they went along. With a private contractor this would have meant constant negotiations and a ratcheting up of costs.
The result was savings of £28m, which spread across the country would amount to £3.5bn – a major contribution to government savings targets.
This local experience illustrates a very different strategy towards public services than the government's. In Newcastle, the in-house transformation of a strategic council department helped stimulate the local economy. The savings went to labour-intensive departments of social care and the success of transformation meant new jobs were created to meet expanding IT needs in city schools. It is a model of how, with government support, a local authority can act to counter the recession.
The second lesson is a more ambitious one, inspired by the proudly public nature of the Newcastle transformation. This stands in stark contrast to the debilitating and defensive taboo which the words, even the idea, of "public control" has for Gordon Brown when it comes to the government's relation to the banks and financial markets. The result of the government's funding of the banks, unlike Newcastle's experience, has resulted in the complete absence of any control of the use of public money – to address the recession, for example, or the greening of industry – or any insistence on structural reform necessary to purge financial institutions of their systematic irresponsibility.
The methods of democratic public management applied to running a local authority cannot be simply transferred to running banks as public utilities or even controlling public money granted to banks. But the principles can. For a start, there's the principle of no public spending without democratic control – which means transparency, accountability, and maximum participation by those sections of the public affected by any decision. Joseph Stiglitz makes such democratic control central to his UN recommendations on the financial crisis.
Just as in the 17th century the slogan of the democrats was "No taxation without representation", the slogan of democrats in the 21st century has to be "No public spending without public control".
The Newcastle experience demonstrates that democracy-driven public sector change can work if given political and trade union backing. It's one local example, but if national politicians of the centre left are unwilling or incapable of renewing public institutions, and if political parties are rock bottom in people's confidence ratings, below bankers and second-hand car salesmen, it may be time to pay attention to such local innovations. If you look, you'll find there are alternatives. We could learn from these local experiments giving institutional form to the ways in which public money is spent to counter the recession.

Hilary Wainwright's report on the Newcastle experience, Public Service Reform But Not As We Know It, with Mathew Little is published by Compass, Unison and the Transnational Institute.
Hilary Wainwright is a fellow of the Transnational Institute and a co-editor of Red Pepper.