Making common cause across the public sector
Part Four - Making common cause across the public sector
Alan Sitkin, Senior Lecturer, Regents University London
One of the things that stands out from my Enfield Council experience in economic regeneration was the extent to which decisions were based on potential partners' defence of their own interests. This was challenging enough in regeneration dealings I had with potential private sector partners, for example over the principle that they could not expect higher margins with lower risks. But it was even more frustrating when these partners were, like us, also in the public sector.
As with entrepreneurial ventures, financial viability of state-run entities is imperative. What is different, however, is the extent to which public sector financial performance needs to translate into surplus income, a calculation affected by the socio-political considerations that the government will always have to address.
Right from the beginning, Energetik needed significant funding for its business start-up needs. But the big idea driving this entire initiative was to take very large quantities of heat from the North London Waste Authority’s (NLWA) waste plant, pass them through an energy centre and distribute them to future customers not only in Enfield but across London.
An energy centre costs a lot of money, as does the laying of pipes to deliver the heat. And any decision taken by a public body to award a lot of money is, unsurprisingly, always going to get a lot of political attention. Hence require a great deal of political cooperation.
The lesson here is that public sector entities are very capable of failing to agree on a common approach even when they share common aspirations. This is often because each entity is only thinking within the boundaries of its own narrow interests.
For some politicians or officers, this translates into a view that passing budgetary costs onto other bodies is a safer career path than taking the risk of trying to increase revenues. For others, it is more of a cultural phenomenon, with the UK’s admirably democratic culture translating far too often into negotiators seeking an impossible consensus – with social cohesion being deemed more important than timely outcomes. The result is, in the words of the National Infrastructure Commission, that “too often the delivery of the UK’s major infrastructure projects has been slow and uncertain”.
This phenomenon manifested itself very early on in Energetik’s life. The obvious environmental benefit of this initiative – to capture heat currently being emitted from the NLWA’s waste plant’s chimney stacks and pipe this heat to customers – corresponds to national carbon policy aspirations shared by all relevant state and para-state bodies – including and maybe especially the NLWA. Indeed, when the Edmonton facilities are renovated (around 2025), de-carbonisation actions of this kind are likely to be mandatory. Hence our expectation that signing a heat supply agreement with the NLWA would be easy.
It wasn’t. The NLWA had two decision-making bodies and each was very difficult to navigate– raising a question as to why they didn’t view Energetik’s interests as being aligned with their own. There are different reasons for this.
Understandably, the priority for the body managing the NLWA’s actual facilities was the safe and smooth running of their operations. The problem is that this led to their adopting a cautious stance during the heat supply agreement negotiations, taking a long time to imagine all sorts of improbable worst-case scenarios that we and they might have done better to identify and deal with in one fell swoop instead of one at a time.
As for the NLWA board, comprised of its seven North London borough shareholders, we had to manage fellow councillors’ concerns that Energetik gave Enfield an unfair advantage. Clearly, we did not do enough to build coalitions soothing our partners’ concerns. Ultimately, we addressed this by communicating that we didn’t feel precious about having started the company and would be delighted were our partners to join it, including by taking an equity stake. This was both a psychological calculation on our part – to co-opt other councils’ support by sharing our glory – and an economic one, given the benefits for the company of growing it so it could operate at a larger scale.
If Energetik were to serve Enfield alone, the economies of scale generated would be much lower than if it covered much of London. But to serve customers outside of Enfield, we would need cooperation from the boroughs where we would be laying the pipes bringing heat to these customers – and from the GLA, which likes to oversee cross-borough initiatives of this sort.
Until such time as Enfield enjoys that buy-in, the lesson is that the narrow outlook of (and rivalries between) ostensibly politically-allied bodies can be a much greater problem for state enterprise than other problems which people like to proclaim (like EU state aid rules or access to capital). The specific problem for Energetik is that time costs money. Capital was borrowed to launch the venture and the longer it takes to finalise these arrangements and get the full business up and running, the greater the interest charges that our new company must bear before it even gets started.
The good news is that as politicians and officers change over time, attitudes and consensus also change and point to a greater willingness to cooperate. New people can view existing ideas in new ways. Indeed, there are heartening signs that the concept of viable state-owned enterprise has made rapid progress in recent months. At a time of economic uncertainty, for more and more UK local and national politicians, companies like Energetik offer hope for an industrial future. In economic regeneration as in politics (and indeed life), decision-makers’ psychology is often as important as their actual decisions.