What is a Public Service Mutual?

A Public Service Mutual ‘delivers public services through a co-operative or mutual governance structure, whereby members of the organisation are able to be involved in decision-making, and benefit from its activities, including benefits emanating from the reinvestment of surpluses1.’

There are three main types of co-operatives and mutuals: consumer, producer (employee) and enterprise; with hybrids of these three types also occurring.

1. Consumer Co-operatives

Consumer or community-owned co-operatives work best where people with a common sense of purpose collaborate towards agreed goals. Consumer co-operatives can be an ideal approach for disadvantaged groups where there is the energy, commitment and expertise in the community to tackle problems.

Consumer co-operatives recognise the importance of personal identity in public services. Many people want to identify with the support they receive and want it to be culturally relevant. Co-operatives are an outstanding method of developing members’ capacity to participate in the broader community by providing enhanced networks, increased confidence and skills.

Consumer co-operatives have demonstrated success and have enormous further potential with some of Australia’s most disadvantaged groups including Indigenous groups, small rural communities, people from culturally and linguistically diverse (CALD) backgrounds, people with disability and older Australians in need of care.

2. Producer Co-operatives

Producer and employee co-operatives work best with employees who share a common goal and have the skills to co-operate. They provide staff with autonomy and the ability to make judgements as to how to provide the best service at the local level. They free staff to act entrepreneurially and to innovate.

Employee co-operatives and employee governed businesses have proven highly effective in working with people with complex needs, where consistency of personnel is required, and where services are focused on empowerment based approaches. Staff based co-operatives can be particularly effective in providing care services for people with disabilities or ageing Australians, and also in rural, CALD and Indigenous areas where staff attraction and retention has proven problematic.

3. Enterprise Co-operatives

Governments throughout Australia are seeking larger, more efficient public service organisations with a single point of entry for a wide range of complex social problems. Many smaller, yet highly effective social support organisations may not survive competing against these larger organisations with their economies of scale.

In many jurisdictions this means larger organisations are replacing smaller local groups with long held relationships, local knowledge and specialist expertise. Enterprise co-operatives can support smaller local providers to compete by enabling them to share corporate functions including bulk purchasing, accounting, human resources, marketing, client software and OH&S services. Enterprise co-operatives assist smaller and specialist organisations to increase productivity and market power whilst retaining local input and local jobs1.

The difference between co-operatives and mutuals

Co-operatives and mutuals are run for the benefit of members. They are not set up and run for the benefit of external shareholders.

A difference between mutuals and co-operatives is that any co-operative is expected to have subscribed to the statement of identity agreed by the International Co-operative Alliance which defines a co-operative as:

“an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise2.”

This definition provides a set of values and principles, beyond the organisational concept. These cover the economic contribution from members and voluntary and open membership.

Co-operatives must abide by the seven co-operative principles:

  • Member ownership and member benefit
  • Democratic governance
  • Autonomy and independence
  • Reinvestment of profits / surpluses
  • Create social as well as commercial value
  • Education, training and information
  • Co-operation among co-operatives.

The co-operative sector is also guided by six values: self-help; self-responsibility; democracy; equality; equity and; solidarity3.  ‘Democratic member control’4 and ‘commitment to community’5 have been highlighted as the core value propositions of
co-operatives.

On a practical level, co-operatives must be incorporated under relevant state legislation whereas mutuals are not. Companies cannot call themselves co-operatives unless they are incorporated under the relevant Act.

Well known co-operatives in Australia include: The Co-op, Murray Goulburn Co-operative, Dairy Farmers Co-operative and Co-operative Bulk Handling.

Historically, the term ‘mutual’ has been applied to member-owned businesses in banking, superannuation and healthcare. Mutuals raise funds from their members in order to provide them with services such as savings and loans, mortgages, and health insurance. They do this through recycling money with a closed system that does not need outside investors.

Well-known mutuals in Australia include HCF, Australian Unity, Community First Credit Union, and NRMA.6

How do public service mutuals differ from for-profit and not-for-profit organisations?

Co-operatives have three key points of difference from not-for-profit or for-profit organisations: 

  • Member engagement: Member engagement is achieved through member ownership and involvement in decision making. A co-operative requires that members actively participate in the primary activity of the co-operative; attending Annual General Meetings as a minimum. Each member is entitled to one vote. This is different to a shareholder owned company where voting rights are determined by the size of investment.
  • Re-invest profit: As a member owned organisation, profits are re-invested back into the business to improve operations, dividends may be provided to members or profits can be saved to fund future growth and expenses.
  • The Co-operative Principles: Co-operatives must be registered under the relevant legislation in each state and abide by the International Co-operative Principles.

When is a public service mutual appropriate?

A co-operative or mutual structure delivering public services can improve the economic ‘return on investment’ for taxpayers. They achieve this by their support for consumer choice and control and efficient and innovative service delivery. PSMs are well placed to support community resilience where public services cannot be delivered due to market or other service provision failure.

Co-operatives and mutuals have many advantages in delivering public services in areas that are not well serviced because they are small, remote, complex or specialised. Co-operatives and mutuals have proven particularly useful when:

  • Services are too expensive for government or market forces to provide
  • There are low or variable profits
  • Specialised service is needed
  • User input is required in service design and delivery.

Benefits of public service mutuals

Co-operatives and mutuals generate benefits through their autonomy and independence, decision-making by members, member economic participation, reinvestment of profits, and co-operation.

These benefits include:

  • Increase organisational diversity in public service markets – Co-operatives and mutuals can assist small and medium sized service providers to collaborate and operate more efficiently in public service markets.
  • Harness the professionalism of public service employees and unleash their entrepreneurialism – employee owned organisations ‘spun out’ of existing government organisations are an alternative to privatising or outsourcing services. Employee owned organisations have a key role to play in developing a quality, innovative public service workforce.
  • Increase consumer choice and control – by helping individuals and communities to formulate their own responses to problems in client directed care markets, co-operatives and mutuals develop empowerment through community owned co-operatives.
  • Stimulate public service innovation – member engagement in decision making leads to greater innovation and entrepreneurialism.
  • Local Resilience – The reinvestment of profits back into the co-operative creates a multiplier effect to improve the economic development and resilience of the local community. Less money leaves the community to pay for corporate shareholder dividends

How to establish a public service mutual

To assist the growth and development of co-operatives and mutuals delivering public services, we have developed a ‘how to guide’ which provides an overview of the key steps in setting up a co-operative as well as provides a repository of reports, journal articles and websites.

Download What is a Public Service Mutual?

 

 

Read more about the PSM White Paper on the BCCM website.

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