[Fresh Ink] [UK] The third-sector money-go-round

[RICHARD MENEC]

http://www.morningstaronline.co.uk/index.php/news/features/The-third-sector-money-go-round 

The third-sector money-go-round 

Thursday 22 October 2009 

Solomon Hughes 

The Labour government's love for the banks is as deep as it is mysterious. In its latest offering to the gods of finance, the government has decided that charities can take over more of the public sector, but only if they behave like banks. 

The government likes to talk about the "third sector" running public services. Three is a magic number. It's a third way thing. The government likes to argue that this is not privatisation, because "third-sector" organisations aren't profit-making. 

It is a kind of soft privatisation - handing over welfare and social services to profit-driven corporations looks too hard. Giving one or two contracts to charities acts as a fluffy diversion from the takeover by the distinctly spiky profit-driven firms. 

Defenders of public-sector provision see this as a smokescreen, a distraction. The government wants to push through more contracting out, but it knows that the endless privatisations irritate its supporters. So throwing in a few charities makes contracting out look all nice. 

Effectively the government is strapping a few charities to the front of the privatisers' tanks to help them drive through the public sector. 

This is certainly true - for all the talk of "mutuals" and "non-profits" delivering government services, most privatisation involves big, sometimes multinational service corporations. 

But the government has another trick - using the principles of banking to turn charities into private businesses. 

Now you would think that the government might be a bit wary of boasting about using banking principles since these principles have just taken the economy to the edge of a precipice. 

But it just can't stop itself. It has set up funds to lend charities cash at interest for the charities to use to run government services. Interest drives the profit system. For the charities to pay the interest, they have to make a profit. Hence using these mechanisms the government converts non-profits into profit-driven businesses. 

The government couldn't get real banks to lend the money, so it hired bankers to distribute government funds to charities on bank principles. Instead of just paying for public services, Labour lent money to charities so that they could bid for public services, services for which they would then be paid by the government. 

It is a weird money-go-round. Labour got involved in this pretend banking to change the charities. 
Now, readers of this newspaper probably think that banks need to be made more like charities. Finance houses should put service before profit, be made more socially conscious, long term and caring. But in new Labour's upside-down Labour, charities need to be made more like bankers. 
These shadow banks were first launched with a £125 million fund in 2003. Management of the fund fell in part to the Northern Rock Foundation - not a great advertisement for financial stability. 

Soon, complex banking-style structures grew from the cash. The money went to an organisation called Futurebuilders, which in turn hired fund managers called the Social Investment Business to run the deals. 

In 2007 the Cabinet Office topped up the fund with an extra £25m. The Department of Health and Department of Communities look set to chuck in £100m each so Futurebuilders can loan to charities so they can bid for health and local government contracts. 

The Blairite Policy Network exposed me to the Social Investment Business style when Jonathan Lewis, the former ITV manager who runs the fund, spoke alongside James Purnell MP at a meeting they had organised. 

Lewis just loves making those City boy noises. "The third sector is worth £1 billion," he crowed. "It is larger than the automotive industry. It is a very big business if you like. It could be a bigger business." 

The thing is, we don't like. If I attached wheels to my cat maybe she could make a good skateboard. But then she wouldn't be a cat. 

Lewis said: "In selling loans to the third sector we meet a lot of resistance to the idea of investing in charities." He said charities were undercapitalised and resistant to loans. 

This is because they are charities, not speculative profit-seeking businesses. 

Unfortunately Lewis also revealed the bad news that "the culture in this sector is changing" as the "third sector is becoming keener on loans." The promise of money and influence is beginning to tell. And the real bankers are getting excited as well. 

"Talking to merchant bankers they are keen on third-sector investment," said Lewis. "It is pretty safe to invest in the third sector because of low default rates." 

So there we have one more victim of Labour's privatisation drive - not only is the public sector wounded by the profit motive, but charities become collateral damage as well. Labour wants the "third sector" to get City-fied just when the City's failures are exposed. 

One odd feature of the commercialisation of the "third sector" links housing in Aylesbury to abuse in Peru. 

As the Morning Star revealed, British mining firm Monterrico wants to build a massive copper mine in the Huancabamba mountains in Peru. 

Local farmers protested and they were shot, beaten and abused by the police. The protesters blame the company, although Monterrico vigorously denies any responsibility. The protesters are now suing the firm in the High Court. 

Monterrico's directors include one Harry Cooper. Some years ago the Conservative government, in its war against council housing, turned to the "third sector." 

Some council estates could not be sold off, so they were handed to non-profit housing associations. 
These were then urged to become more business-like, hiring executives on high salaries. 

AmicusHorizon, which runs ex-council social housing throughout London and south-east England, hired one Harry Cooper, whose other job involves Peruvian mines.
-------------- next part --------------
An HTML attachment was scrubbed...
URL: http://booksinternationale.info/pipermail/freshink/attachments/20091023/2cb9c039/attachment.html