Tuesday, 24 May 2016

Breaking the Constitutional Silence

Michael Moran

For some time I have been working with colleagues in CRESC (the Centre for Research on Socio-Cultural Change) tracking the consequences of the great privatisation and deregulation revolution to which the British economy has been subjected in recent decades. That research is largely summarised in two recent books published by Manchester University Press: The End of the Experiment: from competition to the foundational economy (2014) and What a Waste: outsourcing and how it goes wrong (2015.) But those books largely address the economic and social consequences of change. They say very little about its constitutional implications. Realising this is what led me, with my colleagues Sukhdev Johal and Karel Williams, to write ‘Breaking the Constitutional Silence: the Public Services Industry and Government’, now published by Political Quarterly.

The core argument of ‘Breaking the Constitutional Silence’ is that the privatisation and outsourcing revolutions do not just have economic significance. They also amount to profound constitutional change, but this change is barely recognised because of the way the constitution has usually been conceived and discussed in the United Kingdom. The constitutional vocabulary in this country is peculiarly impoverished, by contrast with the vocabulary in the United States and much of continental Europe. In the United Kingdom the constitution has largely been confined to overt political concerns: the organisation of the institutions of the state and the determination of the physical borders of the polity. In the United States there is a complex jurisprudence surrounding the regulation of corporate power; in the UK economic issues, and in particular the regulation of the corporation, have been areas of constitutional silence. That silence largely derives from the character of British historical development. Corporate law – and especially the limited liability legislation which gives the modern corporation huge privileges – dates from the middle decades of the 19th century: in short, from a period before the rise of either a democratic or an interventionist state. Businesses were conceived, in a phrase which we borrow from Gavin Kelly and Andrew Gamble, as ‘little republics’ independent of public authority. More important, they still are conceived in this way. That creates a major general problem in the regulation of corporate power, but our focus in the paper is narrower. Outsourcing has in recent decades created a number of corporate giants – everyone has heard of Serco or G4S – that now are contracted to carry out public functions. These functions range from the management of welfare claimants to the management of national security. In outsourcing, the boundaries between the state and the private sector are disappearing; the outsourcing giants are, de facto, governing institutions. But because of the tradition of constitutional silence which treats the corporation as an institution which is beyond the domain of the constitution, this has not been recognised – by either the state or by the outsourcers themselves. The result is that their economic practices – for instance the exploitation of the privileges of limited liability to create corporate structures that maximise profit and minimise taxation obligations – entirely ignore their duties as governing institutions. Even more striking, nobody thinks this either an unusual or improper state of affairs. The outsourcers are doing nothing illegal, and in the traditional vocabulary of the constitution they are not even doing anything improper: since the constitution is silent on their public status, the only obligations they recognise are to their shareholders.

The proposals in our paper try to remedy this state of affairs. These proposals accept that the outsourcing revolution is here to stay; there can be no return - as some traditional trade unionists would like – to a world where functions are taken back in-house. But since we have to live with outsourcing and franchising, it is important to shape it around constitutional understandings – which simply means prescribing that in return for privileges corporate institutions recognise obligations. Our most important proposal is that all outsourcing contracts should be subject to a social licence. Licensing would be an explicit arrangement that gave contracting enterprises or sectors privileges and rights to trade while placing them under reciprocal obligations to offer social returns (above and beyond direct provision of a service). A formal licensing system would make the right to trade dependent on providing a service that meets negotiated criteria of community responsibility on issues such as sourcing, training and payment of living wages.

The immediate implications of this argument of course concern the outsourcing sector. But the wider implications take us back to the starting point of the article. From its 19th origins in company law the corporate sector has acquired substantial privileges from the state, especially through the law of limited liability. The privileges embodied in limited liability now are very different from those envisaged by their original legislative authors in the 1840s and 1850s. But the contract between business and the state has never been revisited because it has never been conceived as an issue for the constitution. Reforming the outsourcing sector is only a first step to a more general reconsideration of the place of the corporation in our constitution.

You can read the full article 'Breaking the Constitutional Silence: the Public Services Industry and Government' by Sukhdev Johan, Michael Moran and Karel Williams here.