Social Market

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John Restakis (in ch. 6 of, Humanizing the Economy):

“A recent experiment in Bologna may hold the key to how a social market might be established without compromising the obligations and prerogatives of government while at the same time tapping into the social economics of reciprocity.

In 2002, a foundation called the Fondazione del Monte di Bologna e Ravenna started to experiment with new ways of funding social care to seniors. Previously, like most foundations, the foundation had provided grants to a variety of social service groups that then delivered care to seniors and their families across the city. The service organizations retained full control of the funds while the users of these services had little or no role in influencing the content or quality of the care they received.

Nor was it easy for consumers to seek more appropriate care elsewhere if they were unhappy. The funded groups were established organizations, secure in their funding, and had little incentive to change so long as power remained exclusively in their hands. Accountability flowed to their funders, not to the people they were meant to serve. Moreover, the model incorporated one of the worst attributes of privatized services in the pubic sector, the isolation of third party contractors from the funder on the one hand and users on the other. Under third-party contracts, the buyer (in this case a private foundation) does not consume the services acquired, the consumer does not pay for the services received, and the contractor stands in the highly advantageous position of dealing with a buyer who rarely sees what is purchased and a consumer who never bears the expense. This is a recipe for low accountability, which affects service quality, and for the absence of consumer influence on prices, which provides no controls over cost.

This is the classic charity model of care that has now become universal among non-profits. The problem was that in many cases, seniors and their families were unhappy with the care they received. But, having no control rights in the organizations nor any say over the funds that paid for the services, they were powerless to do anything without jeopardizing the care they depended on. As with government delivery models these non-profits, despite their best intentions, shared the common faults of paternalism, inflexibility and lack of transparency that flowed from the absence of accountability to users. All this changed when the foundation decided to bypass the organizations and provide funding directly to seniors in the form of social vouchers. Instead of funding the supply side of social care, they would fund the demand side. Three hundred and seventy six seniors and their families were involved in the program.

Each voucher covered the costs for a specified package of services. There were different packages depending on the type of services that individuals needed and also on their respective ability to pay for a portion of the costs. Those that were less able to cover the full costs were subsidized by the foundation and contributions of those that could pay more. Finally, the social vouchers could be redeemed at any of a group of pre authorized service organizations, whether co-op, or state-operated, or privately run. Overnight, the balance of power between service provider and service user was reversed.

Now, seniors or their families were able to select those service organizations that were best able to provide for their needs. The social vouchers looked identical, were the universal currency for services, and the portion of private contribution to social subsidy was known only to the foundation, so there was no stigma or discrimination attached to their use. Nor was it possible to compete on the basis of cost since the vouchers covered all costs equally. Competition arose solely on the basis of quality. In the course of three years, the quality of senior care improved, costs dropped and the organizations that flourished were those that focused on service quality, innovation, and flexibility. Social co-ops that included seniors and their families in their membership did best.

What are the lessons from this experience? First, it indicates that supply side funding for social care can have a direct bearing on the quality of care received. This should come as no surprise. Competition will inevitably arise. But not in the familiar manner of government contracts where low cost is often the deciding factor, but rather in a manner favourable to service users. Nor should it be surprising if the organizations that received charitable and government funding should resist such a change.

Ultimately however, social care isn’t about the providers its about those who depend on their services.

The second lesson is that the limited social market for senior care that was created in this example is replicable on a much larger scale. A social market can be created that involves a different set of relationships and incentives among service users, service providers, and funders – whether public, or private. The use of vouchers is just one mechanism for empowering citizens. The deeper issue concerns the distribution of economic and political leverage to those who are meant to be served. There is no reason why vouchers, or other means of placing market power in the hands of citizens should be associated exclusively with the political right – as it is. The use of market power for social care is just as amenable for socially progressive purposes if the market in question is structured around civic principles. All markets are not commercial, or capitalist, and the sooner social reformers and progressives understand this, the sooner we can start resolving the contradiction between social goods and antisocial delivery systems. Civil society must grapple with how economics can be made to work for civic purposes – a social market.

Four factors seem essential. The first requires shifting the production of many social care services from government to democratically structured civil institutions. Government would retain its role as a prime funder for these services. The first portion of this equation is already well underway. Governments have been unloading social services to private and non-profit providers for two decades. It is the second aspect, the need for user control and service accountability that is lacking (as too, is the funding). Social services that receive public funding and are not under the direct control of the state should be conveyed only to those organizations that provide control rights over the design and delivery of those services to users. This applies equally to non-profit and for profit services.

Examples include organizations that provide elder care, family services, or day care. Moreover, those services that remain under state control, and there are many, (social security, public pensions, public auto insurance, health care services, etc.), should be democratized. Everyone with a health card, with a social security number, with a driver’s license, should be entitled to membership rights in the institutions that control these services and to representation on the boards that direct these organizations.

Consider health care. In most jurisdictions, Regional Health Authorities are wholly funded by government. Yet they are run like private corporations with their CEO’s and boards appointed by Health Ministers. The single most important measure that could be taken to improve their responsiveness to the needs of the communities they are meant to serve is to enable direct community representation on these boards through democratically structured organizations at a local level. And while a case can be made that services like employment insurance, that are highly centralized and nationally administered would make such democratization unworkable, a large portion of state-controlled services are regionally based. The basic principle of subsidiarity - whereby services are controlled by those levels of the state that are closest to the user - would be immeasurably enhanced if it were combined with democratic governance. As we will see in the case of Japan’s health co-ops in the following chapter, it is the precisely the presence of democratic control by community members that has generated one of the world’s leading examples of preventive care.

Second, government funding should, at least in part, flow directly to social care recipients who would then select the services they need from accredited organizations of their choice. To qualify for receipt of public funds, these organizations must have provisions for user control in their operations. In addition, funds must be made available for the organization of independent consumer co-operatives to assist users and their families in the identification, evaluation, and contracting of care services to their members. This is crucial, especially in the case of users that haven’t the means, or the capacity, to adequately select and contract services on their own.

Third, social care organizations must have the legal ability to raise capital from among users and from civil society more generally on the basis of social investing. Within a social care co-op, both users and community members would be able to purchase capital shares for the purpose of capitalizing the co-op. As a social investment, these shares would yield a limited return to investors and investor control within the co-op would also be limited to ensure democratic control by co-op members. As social investments these capital assets would not be taxed as income. Social capitalization also requires the creation of a social market exchange based on the principle of reciprocity. Individual investors would purchase shares yielding a limited return, with the capital being used to provide credit and investment capital to social economy organizations. Shares would also be eligible for tax credits on the basis that such investments have a clear and direct social benefit.

Fourth, any surpluses generated by these organizations should be considered, at least in part, as social assets. All social care organizations using public funds would establish an indivisible reserve for the expansion and development of that organization and its services. A portion of operational surplus would also have to be used for the partial capitalization of the social market exchange through the purchase of shares.

Fifth, the primary role of government would be to continue to provide public funds for social care services and to fix the rules of the game. In partnership with service deliverers, caregivers, and users, the state would regulate and monitor service delivery, establish service standards, license service providers, enforce legal and regulatory provisions.

Finally, the locus of service design and the designation of service needs would take place, as much as possible, at the community and regional level of delivery. This requires the creation of civil and municipal associations of public and community stakeholders to ensure the accountability of services and the flow of information necessary for effective budgeting, service design and delivery. Most importantly, this decentralization of service delivery must include the democratization of decision-making through the sharing of control rights with service users and caregivers.

These provisions are obviously not exhaustive. They do however outline a direction for the considered development of a market structure that is focused on the social and economic realities of the goods and services it is meant to facilitate. There is nothing here that is indefensible on theoretical, political, or pragmatic grounds. What is really at issue is whether key actors and organizations within civil society and the social economy are able to establish a consensus on the changed reality and the need for civil society to play a new role – to in effect grow up and take its place as an autonomous sector of society in proper balance with the state and the commercial market. Until this happens, the progressive colonization of social and public space by capital will continue. “