MAKING THE PRIVATE SECTOR WORK FOR THE PUBLIC SECTOR - LESSON FROM SAN FRANCISCO

Last Thursday, a conference organised by the independent thinktank Wales Public Services 2025 concluded that there would be increased pressures on the Welsh public sector over the next few years as government expenditure continues to shrink.

One report presented at the event suggested that with increased demand for funding in education, health and social services in Wales, there could be dramatic cuts of up to £1.4 billion in areas such as culture, economic development, transport and housing.

Another study indicated that such cuts would inevitably result in a more fundamental change in mind-set on the part of public service leaders, staff and the general public over the next few years.

From my own perspective, the key question is whether the Welsh Government can continue to develop services in these areas alone to ensure their continuity?

In particular, it must consider whether all of the wisdom on making public services more efficient and effective lies within its own managers or whether it should bring in new ideas and solutions from outside the civil service?

One radical approach to such a quandary was launched earlier this month by the Mayor’s Office in the city of San Francisco.

The Entrepreneurship in Residence (EIR) programme is a competition to select talented teams of entrepreneurs who will work alongside senior government officials to help solve particular problems, help increase revenue, enhance productivity and create meaningful cost savings.

In doing so, the individuals chosen will drive innovative solutions in key areas such as healthcare, education, data, mobile and cloud services, transportation, energy and infrastructure.

And to ensure they quickly adapt to their new surroundings, they will be mentored by senior public sector leaders and supported through training on important topics related to working with government like open data standards, procurement and security.

So what are some of the problems these entrepreneurs can help to solve?

According to the City of San Francisco, these can range from examining how the public sector can leverage the growth in open data can enable better decisions, to how public assets can be utilised to generate additional revenue.

It can also include far more simple, but effective solutions to issues such as improving transport efficiencies and optimising the purchase and use of energy.

The public sector will clearly benefit from such an approach that brings entrepreneurial expertise and experience to bear on specific and protracted problems.

However, there is also the advantage for those entrepreneurs participating in the programme in that it will serve as a showcase for specific solutions that can be applied across other parts of government, which is a massive potential market for any business.

In fact, part of the selection process is that the city of San Francisco expects those chosen to “ramp up” their business through competitive offerings that governments consider purchasing because it has a measurable impact such as lower costs, enhanced productivity and increased revenue.

To a large extent, it could be argued that such a programme is acting as an incubator for those businesses who would want to provide solutions in the public sector but have yet no idea on how to access the purchasing process. Certainly, this is an idea that may be highly relevant to the Welsh public sector that is the largest purchaser of goods and services in our economy.

To date, using the private sector for delivery of public services has been largely a no-no to the successive Welsh governments that have held power since 1999.

However, I believe that this philosophy, whether you agree with it or not, should not preclude politicians from utilising private sector expertise and experience to ensure that we get the most from our public services.

Indeed, there are already examples, such as the potential for the South Wales Metro transport system, where businesspeople have driven forward innovative ideas through their drive and energy.

But more could certainly be done and there is certainly the entrepreneurial talent in Wales that could be drawn upon to help government solve some of its immediate problems.

With some economists suggesting that the public sector accounts for as much as 65 per cent of Wales’s economic output, adopting programmes such as the EIR could establish real opportunities to bring business and government together to not only create greater efficiencies but to also open up new markets for innovative Welsh solutions that can be applied across the rest of the UK.

WALES CAN LEAD THE WAY IN PUBLIC SECTOR INNOVATION

Last week, a report was published that, woefully, received little attention from the Welsh media but could, if implemented, have a transformational effect on the way that public services are delivered here in Wales.

Funded by NESTA, 'State of Innovation: Wales Public Services and the Challenge of Change' should be compulsory reading for every senior manager within government and the public sector in Wales. Authored by Matthew Gatehouse and Adam Price, the facts from the report were startling.

More than two thirds of our economic output comes from the public sector, a situation that is compounded by low private sector productivity, which means Wales remains the poorest part of the UK.

Nearly a fifth of the Welsh population is aged over 65, which is a higher proportion than the UK as a whole, putting pressure on an already stretched health and social care system that will only increase as life expectancy improves.

Pockets of Wales, especially in postindustrial areas, have some of the worse health of any parts of the UK, with 27 per cent of economic inactivity due to long-term sickness.  In addition, we also have higher comparative levels of child poverty.

Whilst in the past, governments have dealt with such issues by merely throwing money at them in the good times, that scenario is now at an end. Welfare spending is set to fall dramatically over the next few years and the funding that the Welsh Government receives from the Treasury will continue to reduce.

In the past, such government cuts have been accepted with largely a shrug of the shoulders, some industrial action but then a quiet acquiescence that we might as well accept it as there is little that can be done ‘in the current circumstances’.

However, this report blows that comfortable complacency out of the water by showing that stronger and healthier communities can be created if we embrace greater innovation within the public sector.

And we already have some strengths in place.

According to the report, Wales is big enough to scale beyond the purely local but small enough to organise a coherent national strategy.

Indeed, a radical programme of transformational change is possible because of this “Wales effect” i.e. the common sense of belonging, the strong personal relationships between the main players, the much shorter communication distances between national government and local delivery, and close connections between policymakers, practitioners and academic institutions.

This natural advantage, along with a dominant public sector, a strong academic base and close communities, means that there is a real opportunity for Wales to become a global leader in public service innovation.

And it is not that we are beginning from scratch.

There are already several cases of excellence of innovation within public services in Wales, including the “Your County Your Way” strategy led by Monmouthshire County Council; Time Banking Wales which is transforming local engagement in the South Wales Valleys; and the Gwent Frailty project which, as a partnership between five local authorities, Aneurin Bevan Health Board and the voluntary sector, is reshaping services in primary and community care around the care needs of people.

But despite such examples, there is more that can be done to ensure such innovation does not remain within isolated areas across the nation but becomes a normal part of the delivery of public services in the future.

There is also the opportunity to incentivise new partners in the private sector, such as technology providers, to turn Wales into a global test bed for those wishing to develop innovative solutions via digital technologies in areas such as health and education.

This of course, will require acceptance of greater risk within the public sector where innovation and accountability can go hand in hand, and failure is an chance to learn from mistakes rather than an opportunity to apportion blame when something goes wrong. With a new Permanent Secretary who, in his public statements so far, embraces such a culture, the Welsh Government could be leading such change across the public sector in Wales.

But it is not only the public sector alone itself that can make a difference to this agenda.
For example, with the creation of a new University of South Wales, there is an opportunity for this institution, with its roots in some of our most deprived communities, to become a catalyst for change in driving forward innovation within public services in Wales, especially by making innovation skills centre stage in management and leadership programmes in order to create a new cadre of innovators across Wales’ public services.

There is also a greater role that can be played by the third sector in Wales, especially in the creation of new social enterprises that can help deliver local services around their communities in a far more efficient way than many public bodies. Indeed, could the current review of mutuals and co-operatives by the former minister Andrew Davies herald a seismic shift in the way some public services are delivered in Wales?

In 2011, the economist Gerry Holtham wrote in an article in the Western Mail that instead of bewailing the fact that our public sector is too big, why don't we make virtue of necessity? As he noted at the time, whilst industries rise and fall, there will always be a need for good government in every part of the World.

PUBLIC PROCUREMENT IN NORTH WALES - A LEVEL PLAYING FIELD?

An article in the Daily Post last month reported that of the £552m in goods and services procured by local councils last year, just £155m was spent in North Wales.

At a time when the local business sector needs to be fully supported as it struggles to emerge out of recession, the finding that 72 per cent of local authority procurement is obtained from outside of the region is a shameful figure.

In fact, when you consider that even if only half of the goods and services that councils buy were purchased from local firms, this would bring an additional £121m into the North Wales economy, generating thousands of jobs.

Of course, it is not only councils that should be under the spotlight and I would also like to see health boards, universities, colleges and the Welsh Government itself release similar data for the region.

Certainly, it is an issue I have been writing about since on a regular basis 2004 and I am glad that this is finally getting some of the attention it deserves by politicians across all political parties.

But local procurement is not an issue only for North Wales. Recent research from Europe showing that small to medium sized firms (SMEs) won less than third of all contracts above £5million. Micro-businesses, which employ less than ten people, got only 6 per cent of the total market of contracts in terms of value.

It has been suggested that this situation is exacerbated by the tendency to issue large single contracts, which seem to benefit bigger companies. Instead, critics have suggested that public authorities should promote the practice of breaking down tenders into smaller lots, a move that would increase the probability of smaller local firms becoming successful.

One of the recommendations I made as Chairman of the Welsh Conservatives’ Economic Commission was for the Welsh Government to promote is the imposition of targets for spending public budgets with local small firms, as is the case in the USA where the Office of Government

Contracting works to create an environment for maximum participation by small businesses in federal government contract awards. With the US government spending billions of dollars in purchasing goods and services from private firms every year, targets have been set for every government department as to the proportion of expenditure that will go to SMEs. More importantly, legislation in the USA ensures that the public sector must conduct a variety of procurements that are reserved exclusively for SMEs.

Those who defend the status quo in Wales suggest that it will be the taxpayer that will lose out if we favour smaller local firms over larger and, allegedly, more efficient, companies. There is simply no evidence for such a supposition.

I recently met with a group of North Wales construction companies who had expressed serious concerns over the new framework agreements for public sector construction in North Wales. These, they suggested, had been designed specifically to keep local companies out of consideration by a process that favoured larger national businesses.

Certainly, those public servants in charge of putting together these contracts, which are worth hundreds of millions of pounds, need to answer such concerns. However, when I asked the companies concerned about competition is that they said they would welcome it, as long as they weren’t excluded and given the opportunity to compete.

Indeed, as one of the owners of these firms stated quite firmly, “I have never lost a business contract to a large company and I am not about to start now”. Clearly, the evidence shows that the public sector in Wales needs to consider its policies towards supporting local firms through procurement.

However, it could start to address this issue immediately by ensuring that as a matter of course, every local business that wants to compete for a public sector contract is given the opportunity to do so.

And on such a level playing field, I would certainly back our companies to win these contracts every time.

MAKING THE PUBLIC SECTOR INNOVATIVE AND COST EFFECTIVE

Since the current UK Government assumed power in 2011, much of the effort of Whitehall departments has been on reducing public expenditure to deal with the financial deficit.

Yet, focusing simply on saving money in public services is alone not sufficient as it simply fails to take into account the overriding problem with much of the public sector in the UK, namely that it is not only inefficient but is generally unwilling to participate in any meaningful innovation. As a result, the public sector is caricatured as being risk-averse, unentrepreneurial and focused more on managing processes than outcomes.

And yet according to the Kennedy School of Government at Harvard University, there are plenty of examples of the public sector adopting a more enterprising approach to delivering services. Last week, its Ash Centre for Democratic Governance and Innovation recognised 111 innovative government initiatives under the Bright Ideas initiative.

Taking examples from all levels of government - from school districts to the US Government itself - it recognised public innovation in a wide range of areas including rural regeneration, environmental problems and, topically, the academic achievement of students.

In crime, a bright idea from Baltimore collects and analyses data to determine hot spots in high crime and traffic incidents to deploy high visibility officers in those areas and curb future crime. Similarly, Pennsylvania uses new technology to analyse data and identify non-custodial parents not likely to pay child support and offer them increased support. In dealing with the legacy of the economic downturn, several public bodies have developed new approaches that are making a real difference to the regeneration of their local areas.

In New Orleans, the Mayor’s office has developed a tool that measures and tracks the city’s performance towards reducing the number of decaying and abandoned properties whilst a Michigan initiative known as Project Green House recycles upwards of 95 percent of abandoned home building materials. The City of Newtown in North Carolina has developed a free, outdoor Wi-Fi network to attract more customers to the downtown business district, city facilities, and parks whilst the e2 Business Programme in Salt Lake City provides local businesses with the knowledge and support necessary to implement sustainable business models.

There are also several projects that focus on reinvigorating school curricula and encouraging interest in science and mathematics. For example, NASA’s Explorer Schools provides teachers with interactive lesson plans and classroom activities around mathematics, science, technology, and engineering. Ohio’s Science and Math Moving On program provides its seventeen school districts with the latest in 21st century, high-technology learning tools to invigorate traditional lesson plans and enhance learning among students.

With regard to environmental protection and conservation, the MassGrown and Fresher initiative in Massachusetts connects consumers to local agriculture, whilst Hawaii’s Maui Nui Seabird Colony Champions engages the local community in the protection of endangered seabird colonies.

And there are many more examples of how the public sector in America, through its ingenuity and inventiveness, is making a real difference to local communities. In fact, what really hits home when you read through the list of projects is the clear evidence that direct intervention from all levels of government does not require endless resources and large budgets.

Most important of all, the innovations recognised by the 2012 Bright Idea list demonstrates that there can be a reduction in the size of the public sector whilst serving citizens more efficiently and effectively. Surely, it is this philosophy that should be at the heart of government in Wales where nearly two thirds of the economic output of this nation is dependent on the public sector.

Rather than complaining that higher quality in health, education and economic development can no longer be afforded, those working in the public sector should take heart from the experiences of other bodies globally to ensure that there is greater innovation within their organisations to deliver services more efficiently and effectively.

This will, inevitable, require a more entrepreneurial approach that, even with the best will in the world, is anathema to many civil servants. That has to change and if we are going to deliver the best level of public services with a reduced budget, then the Welsh Government and other public bodies need to encourage and support their own employees to come up with their own bright ideas to ensure that we have can not only have the best public sector in the World, but also the most innovative and cost-efficient.