History does not seem to be on my side. Trust in governments and politicians is at low levels. A Roy Morgan Research Poll undertaken in 2008 showed that only 23 per cent of respondents gave Federal MPs, and 20 per cent state MPs, a high or very high ranking for ethics and honesty - although it's worth noting that both groups scored a paltry 7 per cent back in 1998. Confidence in public servants was not much better, at 29 per cent. Meanwhile, membership of traditional organisations such as churches, trade unions and political parties has been declining significantly.

Trust and engagement are the twin pillars of a participation society. In their absence, the ties that bind - the networks of ‘social capital' that underpin civility, respect for others and a collective sense of mutual responsibility - are loosened. In Robert Putnam's wonderful metaphor of American individuality, citizens end up bowling alone.

Second, I have form. The manner in which I marshal my evidence reflects two decades as an Australian public servant. If I had been a former minister, the ex-chief executive of a not-for-profit organisation (or even a real academic), I like to think I would have come to similar conclusions. The way in which I would have prosecuted my case, not least the emphases struck, would almost certainly have been different.
 
In 1987 I took leave from my position at the University of New South Wales. My absence lasted rather longer than I had expected. For twenty years I worked at senior levels for four prime ministers and eight ministers across the political divides, often on matters that were the subject of fierce Parliamentary contest and media scrutiny. When I look back on the main issues to which I contributed policy advice or administrative oversight, it's a pretty eclectic list. Chronologically, it begins with the Hawke Government's commitment to a National Agenda for Multicultural Australia and ends with the Howard Government's commitment to the introduction of an emissions trading scheme. Between lie the legislative enactment of native title legislation in response to the Mabo High Court decision, the writing of a values-based Public Service Act, implementation of the Workplace Relations Act and changes to the higher education system. I held positions of authority during the response to Aboriginal Deaths in Custody (on the one hand) and the Northern Territory intervention (on the other). I was there during the waterfront dispute, the war in Iraq and Australia's response to the Asian tsunami. I was deeply involved in welfare-to-work initiatives and in the establishment of the Higher Education Endowment Fund.
 
I served during the early months of the Rudd government, taking some pride in the seamlessness of the process of democratic transition. I left at the end of my contract not because I was pushed. I confess that my departure was not ‘to spend more time with my family' but because, in spite of finding great reward and value in public service life, I had come to believe I could now derive more satisfaction outside the public service than within.

To many of the academic colleagues I left in 1987, I had displayed the political instincts of a chameleon and, at least to some, the morals of a lizard. Worse, by far, my career as a mandarin could be typified as that of an economic rationalist - a distinctively Australian term of abuse. I comforted myself by seeking to display the professional qualities that I thought were required of a traditional senior public servant within Australia's version of the Westminster system of government.
 
I was secretary of a number of departments of state. Secretaries, I should note, are no longer permanent. In 1994 the innocuously named Prime Minister and Cabinet (Miscellaneous Provisions) Act effectively removed continuing tenure. Yet, in spite of having fixed-term ‘contracts', their influential role remains. Their powers, however, are appropriately limited by the structures of governance. Today, as in the past, public service leaders have a significant capacity to persuade the government of the day but their advice is usually hidden from view. It is for governments to set political directions and take decisions and, whether bureaucrats like them or not, it is their responsibility to administer them with dedication and commitment.

This, to me, is a foundation upon which a more participatory democracy should be built. My palpable frustration is not with this political substructure, but with how the edifices set upon it have remained so unimaginative. There are forms of architecture governance that can enhance the development and delivery of public policy by engaging more citizens in more engaging ways. By doing so, opportunities are provided to create a more inclusive and civil society, strengthened by new manifestations of social capital and marked by renewed interest in diverse varieties of social innovation.

The obstacle, curiously, is not politics. The virtues of participation can be argued across the political spectrum. Although there are rather unconvincing attempts to establish new ideological distinctions between ‘conservative' and ‘radical', and between ‘neo-liberal' and ‘social democratic', the aspects of political participation which interest me straddle the old left-right divide. Doing my best impersonation of Sir Humphrey Appleby, I find that I can argue the case for greater citizen engagement equally convincingly from the perspectives of shifting power from the state to the individual (right?) or of building a more inclusive and caring society (left?). I can base my rationale either on the democratic rights of individual citizens (left?) or on the civic responsibilities that they bear (right?). I can posit the benefits of greater involvement of non-government organisations either from the perspective of creating competitive markets for the delivery of public goods (right?) or from that of enabling greater community engagement (left?). My point is simply this: the politics of participation is complex but not fatal.

Rather, the problem is a lack of imagination, insufficient courage and too great an abundance of caution. Too many good things have happened in the delivery of government services only for their beneficial potential to be stymied by being argued for the wrong reasons and/or undermined by a failure of political nerve or bureaucratic inflexibility.
 
Let me get personal. I enjoyed immensely the opportunity to administer the newly-established Job Network in the late 1990s. I was somewhat surprised but delighted at the capacity of community-based organisations to scale up and or create consortia to deliver labour market services just as effectively as the private sector businesses against which they successfully competed. I remain convinced that the quality of services delivered to jobseekers was better, and the outcome costs lower, than under the Commonwealth Employment Service's government monopoly.

Yet my enthusiasm has been progressively diminished by the blinkered vision brought to the administration of Job Network members, reflected in an extraordinarily intrusive contract management. If the Commonwealth Government is paying providers on the basis of outcomes (essentially, success in placing people into work) then there is little justification for prescriptively determined micro-management by bureaucrats. All that is required is for public servants to ensure that the conduct of outsourced providers is ethical and that their aggregated expenditure is publicly accountable.

The difficulty has become clearer to me with the wisdom of hindsight. The establishment of Job Network was argued almost exclusively in terms of cost savings and, to a lesser extent, service quality. The implicit danger was that contracted providers might behave in ways which brought political controversy. Indeed, I remember well the media storm about one community-based organisation spending ‘taxpayers' money' funding haircuts for job applicants. The most exciting potential advantage of outsourcing - that competition would generate social innovation in assisting jobseekers - was lost. Instead, well-intentioned public servants have felt the need to get themselves involved in the internal management of the providers. Many providers, and particularly not-for-profit organisations, feel that they are being moulded to become little more than the government agencies that they replaced. I don't believe that this is the inevitable outcome of such initiatives.

A few days ago, as I was finishing up this essay, I enjoyed the opportunity to share a cup of coffee with Chris Hall. Chris bears testimony to the old adage that if you want a job done well ask a busy person. He is the Chief Executive of UnitingCare West, the President of the Board of the West Australian Council on Social Service (WACOSS) and the Co-chair of the Community Employers' Forum. He has been at the forefront of the relationship between governments and the not-for-profit organisations who increasingly deliver public programs and services under contract.
 
UnitingCare in Western Australia runs about thirty funded programs from sixty-five different cost centres across such diverse areas as disability, mental health, independent living, residential accommodation, drug and alcohol rehabilitation and child sexual abuse. (At the national level, UnitingCare Australia has a close relationship with Wesley Uniting Employment, a successful Job Network provider that has a commitment and ethos that I continue to admire.)
 
Chris and I were talking about the regulatory burden of bureaucratic red tape that increasingly weighed down on not-for-profit service delivery. ‘Governments can't purchase a service from us and then tell us how to run it,' he argued. ‘It won't happen when we've built Australia as a participation society,' I replied. Actually that's not true. I just thought it or, more accurately, hoped it. My job, I knew, was to try to write it down.

Back in November 2008 I was asked to deliver the Spann Oration to the New South Wales branch of the Institute of Public Administration Australia. To an audience of the converted, or at least sympathetic, I extolled the new and exciting changes occurring in the processes of governance, which had profound implications for public services. Let me reprise a few of my arguments.

I think it is a good thing that the provision of policy advice is becoming more contested. The views of officials (such as my old self) now compete with those of political advisers, lobbyists and policy think tanks. Community-based not-for-profit organisations advocate with increased professionalism. The implementation of policy is increasingly contracted out and delivered through the private and ‘third' sectors with the public service retaining responsibility for oversight, evaluation and accountability.

At the same time, and significantly extending these developments, new configurations of policy influence are emerging. All demand new ways of doing things and new forms of leadership behaviour. At the heart of these changes lies the growing importance of collaboration - both across government agencies and jurisdictions, and between the public, private and not-for-profit sectors. In most instances, governments and their public services remain as a hub, with spokes of community-based delivery. More occasionally, genuine networks are emerging, with interconnected webs of political authority.

Until now, the traditional structures of Westminster have continued to frame the relationship between Australian governments, public services and the community sector. Recently, more complex institutional structures of governance have been emerging. They take many forms. Some challenge the premises of representative government by embracing - albeit in a rather inchoate and somewhat reluctant manner - the idea of joint responsibility for public policy. What I mean by that is the opportunity for those outside the formal structures of governance (individual citizens, community groups and contracted providers) to help design and deliver publicly funded programs and services. Instead of being recognised merely as ‘stakeholders', to be informed and consulted on government policy, there is the possibility for non-government players and third-party agents to work together in the construction and implementation of public good.

Private sector and community institutions already deliver services to and on behalf of the government outside the traditional structures of governance. The key characteristics involve the allocation of government business, by public service tender, with conditions set by contract. The goal is to harness market competition. Payment is made on the basis of outcomes and tenders awarded on the criterion of performance. The contracted organisations enjoy greater autonomy with respect to delivery processes than is normal in public sector agencies. Crucially, public services (the purchaser) remain accountable as managers for the use of public funds by the contracted body (the provider) for the delivery of government programs to the citizen (the client).

In aggregate, not-for-profit organisations (particularly in the area of social welfare) have become more reliant on government funding. More importantly - and this is often the reason for their increased financial dependence - the form of government support has changed. Governments are now relatively less likely to provide submission-based grants to not-for-profit groups to support artistic endeavour, community sport, social welfare or the environment. Rather, they increasingly are attracted to awarding competitive contracts for the delivery of their programs. Instead of providing funding to organisations to pursue community goals which governments agree to be in the public interest, governments are now more likely to tender out to community organisations the delivery of public services.
 
Outsourcing by the Commonwealth and state governments began in the early 1990s as a competitive form of procurement. It used the market to secure best value for money and better quality of service in achieving government outcomes. It required public service contract management to guarantee required standards and to assess performance. It is time that this rationale for third-party delivery took on a more adventurous form. Increasingly - it has become evident to me - the success of outsourcing depends on ongoing collaboration between public service and delivery agents. It calls for relationship management, in order to facilitate social innovation and ongoing improvement over the long term.

A contractual relationship, initially based upon rigid compliance to prescriptive administrative guidelines, has the potential to be transformed by collaboration. Third-party delivery, particularly through third-sector organisations, has the capacity to evolve into partnerships in which public and community goals and values become not only more similar but more creative in delivering public benefit.

I hope that these are not vain dreams. A variety of new network arrangements, many still in the early stages of development, suggest to me that an evolutionary process is underway. Government, it would appear, is being transformed into an ‘enabling state'. Sources of authority and influence are becoming more diffuse. A ‘shared power world' beckons. This is not to suggest that I see any indication of a diminution in the desire of government to shape society. Indeed, government appears to be embracing new interventions. It now seeks to extend its influence to private behaviour in areas such as smoking, use of alcohol, sexual conduct, obesity and respect for the rights of others. The present financial crisis has brought renewed interest in forms of government regulation, intervention and even ownership.

What we may be witnessing is the evolution of a far more participatory ‘centreless society' in which public policy is made and delivered by an interdependent mix of government, markets and networks. The traditional hierarchical procedures, formal organisation and rules, procedures and conventions are being replaced by institutional relationships in which sources of influence are fragmented. The exercise of power is becoming more diffuse.

More players get to play a part, including a diverse variety of social enterprises. More organisations are engaged with the political process, even as the number and influence of individual members of political parties wanes. Community-based organisations are accorded a greater role. It is a new process of governing, involving non-state actors, in which the boundaries between the public, private and third sectors are becoming more porous.

This is exciting. It opens new prospects. Not-for-profit organisations have the chance to play a more influential role. But I do not want to exaggerate the speed or substance of change. Public services remain central to coordination. They retain positional authority. In exercising government, the bureaucracy continues to dominate.

Public services are still at the political heart of governance networks. They retain extensive powers. There are many reasons: their resource capability; their collective experience and knowledge; their legislative and regulatory authority; the financial control they wield through grants, loans and contracts; their access to influence; and their exercise of covert power (by which I mean nothing more sinister than the provision of advice to governments on the basis of confidentiality).

The processes of public sector collaboration often continue to reflect implicit hierarchical relationships between the players. Their structure is often externally imposed by governments. To a significant extent, they decide the form and extent of third-sector representation. Their public services can exert power through access to information and their capacity to marshal resources. They benefit from direct access to government ministers.

Structures tend to maintain public service dominance. The real work of collaboration is generally done in committee or through secretariat, usually organised and dominated by the bureaucratic ‘host'. Decision-making continues to reside with governments. While neither public services nor governments operate within the networks of governance as ‘just another organisation', the environment in which they wield their influence is changing. Public services are playing out a traditional role in contemporary circumstances. Increasingly - outside or within government - their power is that of persuasion.

I am not naïve. There is a long way to go. The reality is that the integration of and innovation in the delivery of government programs is unlikely in traditional bureaucratic arrangements marked by hierarchical authority, administrative rigidity and a strong culture of control. The better alternative, as Jim Hyde has noted in examining the requirements for health system reform, is a ‘pulsating organisation' which can reduce or increase its own role through collaborative contact, external interaction and facilitation of joint responsibility. Jim works in Victoria's Department of Human Resources. He illustrates the extent of thinking which is going on within public services. Yet the reality is that the integration of and innovation in the delivery of government programs is unlikely to come easily to many of his colleagues.

My intuition and experience suggest that public services, and the governments they serve, still exercise their persuasive talents in an environment characterised by asymmetrical power. It is not yet, and perhaps cannot ever be, a partnership of equals. Community-based enterprises negotiate from a position of disadvantage. The obvious question is whether not-for-profit organisations should avoid entering into contractual relationships with governments, knowing that - no matter how politically protected they are by a compact or charter of civil engagement - they remain relatively weak when bargaining with the formidable strength of public service agencies speaking with the authority of government.

Community enterprises will always struggle by virtue of the fact that their values-driven ambitions have an infinite capacity to outstrip the resources available. A not-for-profit organisation, committed to community benefit, will find it difficult to harness voluntary labour, raise donations, collect fees or earn interest payments on investments that are sufficient to meet its expanding goals. As the global financial crisis transforms itself into a worldwide economic downturn, the challenge of raising sufficient funds to meet growing demands will preoccupy many social welfare institutions.
 
Australian not-for-profit organisations have a long history of successful commercial operations. Many have embraced the market to raise funds that can be ploughed back into community benefit. That explains in part why, when governments started to contract out the delivery of their programs, not-for-profits were so successful in winning and retaining business. They are now substantial players in governance.
 
However, the extent of their success intensifies the challenges that they now face. Community-based groups define themselves in terms of their vision. Values underpin the ambitions that are articulated in organisational mission and goals. Values are their reason for being. Unfortunately, in the relentless pursuit of the resources that can make their mission manifest, there is a danger that collaboration with funders - and particularly governments -can progressively undermine social intent.
 
The danger I see (and fear) is that in a world in which access to the levers of democratic power are palpably unequal, not-for-profit enterprises may find themselves being reduced to minor partners in contracted governance. Their wonderful strength - devising community-based, socially innovative approaches to the delivery of public benefit - may be dissipated if their potential for critical insight and new approaches is undermined by the wel¬coming embrace of governments. At worst, they may come to resemble arms of government.

Let me be clear. Now, as when I was a public servant, I am attracted to these new forms of government. In an era in which party political affiliation has declined, a robust and raucous squabble of community enterprises gives life to democratic process. In their influence on public policy, however, not-for-profit organisations need to be provocateurs as well as partners. Individually and collectively, they need the inner strength of conviction that builds a civil society. They need to preserve the knowledge and belief that they can make their own futures without government funding and irrespective of government support. It would be a disappointment if, for the very best of reasons, the capacity of social enterprise to influence governance was lost. It would be a tragedy if contractualism stymied opportunities for genuine partnership.

Collaboration in governance involves a recognition of interdependence across a network of institutional structures. It depends upon accepting mutuality of interest. It should not unthinkingly assume consensus. The parties will often come to the table with competing interests. Their different perspectives will only be resolved - indeed, they will only properly be understood - by honest interaction and genuine negotiation. The entire process of seeking solutions needs to be iterative: not just reaching agreement on answers but jointly framing the questions and identifying the problems. That ethos should lie at the heart of the National Compact to which the Rudd government is committed and on which the Parliamentary Secretary, Ursula Stephens, has so widely consulted.

A culture of collaboration between the state and the third sector is crucial to the creation of a shared-power world. Building that represents a daunting task. Yet there are even more exciting possibilities on the governance horizon. Opportunities are emerging for citizens, as individuals or local groups of shared interest, to influence significantly the form in which public support is provided to them.

One option is to fund small-scale, bottom-up social initiatives that are community based. Instead of trying to fit the proposals into a government-constructed agenda, or fund them from within the existing range of prescribed government programs, people need the opportunity to identify and resolve local problems.
 
This is what I, at least, had in mind when I enthusiastically embraced the notion of Shared Responsibility Agreements with Indigenous communities a few years back. My idea was to focus negotiation between public servants and community leaders on specific concrete problems for which both sides would take responsibility for finding a solution. The goal was for ownership of projects to arise from inside communities and be financially supported by the Commonwealth government from relatively small amounts of discretionary funding. By building on the resourcefulness of those within the community, it offered a greater chance of success.
 
In modest ways and for short periods, they worked. The Commonwealth website is still up. The Agreements, it emphasises, were to be entirely voluntary: the ‘community decides the issues or priorities it wants to address, how it wants to address them and what it will do in return for government investment'. There is even a map, ‘current as at August 2006', of the communities that had participated.
 
SRAs (for acronyms give a false sense of public service permanence to the fluctuating moods of governments) taught me that which I would have preferred not to learn. The experience revealed to me that, even with the genuine goodwill of many public servants, the UK's School for Social Enterprise is correct: ‘valuable initiatives can lose many of their potential benefits by being put through conventional governance aims and processes'. Bureaucracies (and larger community organisations) find it hard to think local. I observed a constant pressure to make the community initiatives greater, to link them to broader government programs, to ‘roll out' to communities that were not ready and to ‘scale up' to wide-ranging Regional Partnership Agreements. There was an obsessive interest, from some Indigenous organisations as much as public servants, with governance structures. Small is rarely beautiful (or sufficient) in government.

I am chastened but not disheartened. I find hope in new dimensions of par¬ticipation focused on the delivery of governance to individuals. New forms of partnership are evolving between people who rely on publicly-funded programs (such as jobseekers or those in need of disability, aged care or health services) and the governments, public services and contracted providers who deliver them. It's known as ‘co-production'.

To the extent that citizens are allowed to contribute to the design of their own services to meet their own needs, the various initiatives are often articulated as ‘Consumer Directed Care' programs. They allow recipients of government programs to participate in the design and control of their own ‘individual budgets'. Funding can take the form of direct government payments, ‘cashed-out' programs, service vouchers or - less boldly - active involvement in tailoring a package of existing programs in ways that best suit them. The watchwords are self-advocacy and empowerment.

As so often in public policy, the theory (and the terminology) have run ahead of reality. Yet, at both the Commonwealth and state government levels, there are emerging new approaches which are premised upon providing Australia's citizens (in which I include, of course, permanent residents) with greater opportunities for participation in accessing the public services that they need. Centrelink is now trialling personal services brokerage for young refugee job-seekers in Fairfield in Sydney and Broadmeadows in Melbourne. Billed as ‘a genuine collaborative effort to take a fresh look at the way Centrelink and the local community have been servicing young refugees', the object is to give the jobseekers ownership of their goals and allow them to take responsibility for achieving them. The challenge is whether the government broker providing personalised assistance, or indeed the community workers and organisations who lend support, have the sensitivity to hand over sufficient power to make the venture a success.

More broadly, jobseekers are being offered increased flexibility in negotiating individualised ‘Activity Agreements' with their Job Network provider (which may well be a contracted not-for-profit organisation). Supported by a pool of money called an Employment Pathway Fund, individual jobseekers are now given the opportunity to tailor for themselves a mix of vocational and non-vocational work experience, educational and training activities to help them secure employment.

At the state level, the Western Australian government has introduced an Intensive Family Support program for families who are seeking respite to continue caring for a family member and for families with a child under eighteen with a disability. The Victorian Transport Accident Commission has initiated an Individual Funding Agreement that allows those who have sustained severe injuries to self-purchase programs. Clients directly, or through brokers, can make their own plans on the attendant and support care they require.

The range of opportunities to increase the participation of government service recipients in the design of the programs they require is wide. I was recently talking to an erstwhile colleague of mine, Gavin McCairns. We continued a conversation we had begun when we worked together on welfare-to-work. Presently the State Director of the Department of Immigration and Citizenship in NSW he had, before I knew him, worked for the New South Wales Department of Housing. In examining how best to manage public housing estates, Gavin had explored ways to increase tenant and community involvement through neighbourhood boards. Community renewal, as he noted, is dependent on building partnerships which involve residents in decision-making. While public services need to retain responsibility for ensuring appropriate accountability for the expenditure of public funds, they must also base relationships with community organisations on trust. The goal is not to ‘give power away' but to collaborate.

A somewhat disheartening reflection on the challenge of public service reform is that only a couple of weeks back I received a visit from an enthusiastic young man from the NSW Department of Housing. He was seeking examples of social innovation. He was unaware of the thought-provoking Discussion Paper put out by his own department nine years ago. I gave him my copy. How many good ideas in public policy lie neatly stacked at the bottom of unopened filing cabinets?

Perhaps the greatest progress in the area of individualised funding in Australia has occurred in the provision of government services to people with a disability. I'm presently a member of the Western Australian Economic Audit. My particular interest is in how service delivery might be improved. It's given me the chance to meet with Ron Chalmers who heads up the state's Disability Services Commission which, for two decades, has embedded the principles of partnership and co-production into the Local Area Coordination support strategy. Coordinators help people with a disability and their families and carers to plan, select and receive the services they need. Small amounts of direct funding are also available. In Ron's view, providing personal choice and control has been highly valued both by those with disabilities and their families. Certainly the approach has now been taken up by other states and territories.

The Victorian government, which has also been a leader in the provision of individual support packages for disability services, makes it clear that recipients are able to choose and change service providers. Indeed, more radical reforms have been foreshadowed. While recipients of disability services can agree to have their funding go directly to a combination of service providers and financial intermediaries, there are also options (presently limited) for individuals to sign a deed of agreement directly to purchase the support they require. A Direct Payments project is being trialled which will transfer an agreed amount of funding directly to a person with a disability, a family member or carer. They can then purchase support in line with an agreed plan and, if they wish, administer their own funding.

By promoting a market for disability services in which program users are treated as informed clients, while advocating social justice through the active participation of citizens, individualised funding can make its pitch to both ends of the political spectrum. It rejects the ‘one size fits all' approach to service delivery which, far too often, has served to turn not-for-profit providers into arms of government or extensions of public service bureaucracy in delivering programs to citizens.

As Charles Leadbeater has extolled, on the basis of UK experience, ‘personal budgets and self-directed services mobilise the intelligence of thousands of people to get better outcomes for themselves and more value for public money'. The ‘self-directed services revolution', Leadbeater enthuses, offers a transformational approach to public service delivery. Yet to fulfil its revolutionary potential will require public servants committed to revolutionary intent, willing to share power with the communities and citizens that, through their ministers, they serve. It requires governments, their public services and their outsourced providers to comprehend that the power they wield has in effect been ceded to them by communities and individuals. This, at its heart, is the ‘contractual' basis of democracy.

The welfare state often envisaged needy citizens as clients of a patrimonial state. Traditionally, service users were perceived as grateful recipients. More recently they have been portrayed as informed shoppers in a market for public goods. The co-productive state, by contrast, conceives all citizens as active users and designers of publicly funded services. Whilst they can call on the knowledge and expertise of brokers, facilitators and case workers inside and outside of government, they are in control. Indeed ‘In Control' is the name of a British program that gives force to these ideals. The right of citizens to access individual budgets is premised on the right to self-determination: they ‘should be able to decide how the money that pays for (their) help is used' and ‘decision-making should be made as close to the person as possible'.

I am an enthusiast for the opportunities for political and community participation offered by co-production. In the words of Vern Hughes, who is National Director of Social Enterprise Partnerships in Melbourne, co-production opens the door to ‘demand-side', ‘person-centred' care and support. It can provide a lifeline of self-reliance for those who too often feel helpless victims of a system over which they have no control. It offers the chance to replace dependence and isolation with dignity and involvement. The people who rely on government services get the chance to participate in defining the problems that they face and, to varying degrees, in developing and implementing solutions. They have an opportunity to choose how, when, where and by whom they will receive the services they need.

Where Vern Hughes and I perhaps differ on ‘the empowerment agenda' is in his view that governments should cease funding peak bodies and advocacy groups and direct the savings to consumers and their intermediaries. Perhaps because I view personal budgets and self-directed services through the prism of participatory governance, I continue to see a continuing and important role for not-for-profit organisations at both the national and local level. I don't see that position as exclusive, not least because new hybrid forms of social enterprise are emerging whose commercial orientation and community ambition can help drive innovation and reform. Nevertheless the role of community-based organisations as service deliverers, brokers, professional advisers and advocates needs to be built into models of co-production.
 
There is an understandable apprehension amongst many not-for-profit organisations that individualised funding will be used to undermine their role. The New South Wales Council of Social Services, for example, is wary of the transition from a ‘welfare state mode of service support into a market based approach'. To more vehement critics - and I've met a few - ‘choice' and ‘consumer demand' are just illusionary fig leaves to cover an agenda of ‘welfare on the cheap'.

More moderate is the position put forward by Aged and Community Services Australia in August 2008. It carefully articulated the mixed views in the industry ‘with some embracing a choice and rights approach while others have serious reservations about the potential impact it would have on the care delivery system'. In the same month, National Disability Services, whilst acknowledging that the rise of individualised funding was driven by attractive values such as personal empowerment, expressed concern that ‘if poorly implemented [it] could actually restrict individual choices and service flexibility'.
 
Certainly there are those in the not-for-profit arena who see the potential benefits of Consumer Directed Care. Glenn Rees worked alongside me at the Aboriginal and Torres Strait Islander Commission in the 1990s but is now the chief executive of Alzheimer's Australia. Rees believes that the pilot programs have already been shown to ‘provide better outcomes than those that rely on mainstream agency delivered programs'. Many others share similar views. Count me in.
 
I recognise that the move from consultation to collaboration to co¬production poses complex and contentious issues, not only to the individuals and communities who have the responsibility to determine their own services, but to the not-for-profit organisations which are often the chosen service providers. The citizens' flexibility and choice in deciding from whom they wish to purchase services can also be the community providers' risk and insecurity. The self-directed services revolution, to which I look forward as an opportunity for a more inclusive and participatory society, makes not-for-profit welfare agencies worry that their greater involvement in delivering government services will be reduced significantly. Professionals, many of them relatively poorly paid case workers, may feel uncomfortable as they perceive that they are losing their power to control services. The move towards individualised services may be portrayed as undermining the role of existing providers.
 
My earlier experience of outsourcing ensures that I share these concerns. There is an ever-present danger that co-production will be implemented as just a new form of contractual managerialism. Already the benefits of individual budgets are being argued in terms of effectiveness and efficiency - personalised budgets allow the delivery of government services to be re-engineered, reducing transaction costs and potentially lowering the financial burden of welfare dependence.
 
Whilst these are worthy considerations, the truth is that most human services are under-resourced and the capacity of self-direction to build a more participatory, socially inclusive society will be constrained by the funded services available. People need not only a real voice in shaping the government services they want but sufficient money to back it up.
That's why I see the need for not-for-profits to be integrated into structures of co-production. Designing one's own programs may not be a practical reality for some support recipients. Some will be able to enlist the assistance of relatives and other informal caregivers - a resource often disregarded. Others will need the professional help, experience, empathy and care that are the hallmarks of the not-for-profit ethos. Individual citizens will still benefit from the advocacy of their interests.
 
Yet in truth, while I am concerned to ensure that the transition to coproduction of government services is implemented with care, I worry more that bold initiatives will founder on timidity. There is a risk that governments will be too cautious and that public services and contracted not-for-profit providers will unwittingly create a collusive inertia in the name of protecting individuals from themselves.

Just as competitive outsourcing has failed to deliver the ferment of social innovation that might have been hoped, so individualised budgeting may fail to give citizens the capacity to determine the structure of the services governments provide. Progress has been slow. Too often, at present, only parts of the service are available for discretionary spending. Too often recipients are restricted to choosing from a limited suite of program options. Too often the need for transparency and accountability risks commoditising recipients into ‘units of funding'. Too often central rules and regulations inhibit local initia¬tive, individual discretion and risk-taking.

There lies before us the chance to build far more open structures of Australian governance. There is an unparalleled opportunity for much greater levels of political participation. It also involves dangers. It requires shifts of power. Decision-making needs to be less bureaucratic and more citizen-centric. That requires far more flexible organisational structures and delivery systems and more collaborative leadership cultures. It demands that governments embrace social innovation and that public services are willing to manage the risks that inevitably accompany it. It needs to be recognised that too much ‘accountability', too much public service process and too much ‘professional' expertise kill creativity.

The question is whether the institutions which presently deliver the state - governments, parliaments, public services and contracted providers - have the capacity or will to seize the moment. Will they act, through fear or lack of imagination, to block change? Or, as I hope, can they accommodate the structural innovation and build the cultural collaboration necessary to create a participation society? I saw plenty of change during my two decades as a public servant. In truth, I'm still hoping for more.

Peter Shergold is the Macquarie Group Foundation Chair at the Centre for Social Impact, a collaboration of the business schools of New South Wales, Melbourne and Swinburne universities. This is an extract of an essay which first appeared in Griffith Review, no. 24: Participation Society (ABC Books).

Public services remain at the political heart of governance networks. They retain extensive powers. There are many reasons: their resource capability; their collective experience and knowledge; their legislative and regulatory authority; the financial control they wield through grants, loans and contracts; their access to influence; and their exercise of covert power (by which I mean nothing more sinister than the provision of advice to governments on the basis of confidentiality).

The processes of public-sector collaboration often continue to reflect implicit hierarchical relationships between the players. Their structure is often externally imposed by governments. To a significant extent, they decide on the form and extent of third sector representation. Their public services can exert power through access to information and their capacity to marshal resources. They benefit from direct access to government ministers.

Structures tend to maintain public service dominance. The real work of collaboration is generally done in committee or through secretariat, usually organised and dominated by the bureaucratic ‘host'. Decision-making continues to reside with governments (although they are now subject to more contest, wider scrutiny and greater ‘outside' influence). While the deliberative processes involving stakeholders can result in agreements, conclusions or recommendations, most government decisions are still taken outside the collaborative group.

In short, neither public services nor governments operate within the networks of governance as ‘just another organisation'. Public services retain a distinctive role. That is appropriate. They have to discern and understand the nature of particular interests and advise government on their own assessments of the national interest (while accepting that it is the responsibility of government to decide that interest). Yet the environment in which they wield their influence is changing. Public services are playing out a traditional role in contemporary circumstances. Increasingly - outside or within government - their power is that of persuasion.

I am not naïve. There is a long way to go. The reality is that the integration of and innovation in the delivery of government programs is unlikely in traditional bureaucratic arrangements marked by hierarchical authority, administrative rigidity and a strong culture of control. The better alternative, as Jim Hyde has noted in examining the requirements for health system reform, is a ‘pulsating organisation' which can reduce or increase its own role through collaborative contact, external interaction and facilitation of joint responsibility. The reality is that the integration of and innovation in the delivery of government programs is unlikely to come easily to public services.

My intuition and experience suggest that public services, and the governments they serve still exercise their persuasive talents in an environment characterised by asymmetrical power. It is not yet, perhaps cannot ever be, a partnership of equals. Community-based enterprises negotiate from a position of disadvantage. The obvious question is whether not-for-profit organisations should eschew entering into contractual relationships with governments, knowing that - no matter how politically protected they are by a compact or charter of civil engagement - they remain relatively weak when bargaining with the formidable strength of public service agencies speaking with the authority of government.

I think not. Community enterprises will always struggle by virtue of the fact that their valuesdriven ambitions have an infinite capacity to outstrip the resources available. A not-for-profit organisation, committed to community benefit, will find it difficult to harness voluntary labour, raise donations, collect fees or earn interest payments on investments that are sufficient to meet its expanding goals. As the global financial crisis transforms itself into a worldwide economic downturn, the challenge of raising sufficient funds to meet growing demands will preoccupy many social welfare institutions.

Yet just as governance, and the role of public services, has changed over the last generation so, too, has the framework of community enterprise. Whether supported by traditional philanthropy, or new-age ‘philanthro-capitalist' social investment, the challenge for not-for-profit organisations in dealing with individual or corporate donors is not very different from their relationship to governments. The essential difficulty they face is that, whether they depend on philanthropic foundations, business enterprises or government agencies, they usually have to negotiate financial support and partnership arrangements from a position of relative weakness.

On occasions, relations may become adversarial. I do not believe that is typical. Governments, still less corporations, will not generally use their greater power to threaten or cajole. The essence of the danger for not-for-profits is not ‘collaborative thuggery' by public servants intent on intimidation. The exercise of power is far more subtle and, for that very reason, more pernicious.

Community-based groups define themselves in terms of their vision. Values underpin, although not always with adequate strategic purpose, the ambitions that are articulated in organisational mission and goals. Values are their reason for being. Yet, in the relentless pursuit of the resources that can make their mission manifest, there is a danger that collaboration with funders - and particularly governments - can progressively undermine social intent.

The most profound danger is mission creep. It comes about in a variety of ways. The first is that, seeking to find new avenues of funding, the not-for-profit organisation widens or varies its objectives in order to meet the terms of government contracts. The drift may initially seem modest - still doing things for the poor, for instance, but framing those activities in the language of successive governments (as ‘mutual obligation', say, or ‘social inclusion').

Almost certainly the new mission still serves a socially-beneficial purpose. The challenge, particularly if the process is not carefully thought through, is that the original distinctive mission is weakened. The organisation becomes diverted.

There is a second form of mission creep that can occur in a government-sponsored ‘purchaser-provider' relationship. Not-for-profit values are often expressed as much in the means as in the ends. Finding someone a job, counselling a dysfunctional family, providing assistance to a homeless person or supporting an indigenous enterprise may be tendered out by government to an experienced community organisation committed to the task.

Unfortunately, the manner in which the service is to be provided may be transformed by administrative guidelines in ways that weaken the spirit - the very heart - of the community organisation. In part this is because government contract payments are usually based on outcomes which give scant acknowledgement to the processes of engagement that many not-for-profit businesses hold dear. The need to achieve outcomes, and the rigours of an imposed compliance regime, may over time lessen the sense of community purpose that inspires commitment.

At least in such circumstances the not-for-profit institution wins the tender with eyes wide open. Worse, by far, is when governments, although committed to outcomes payments, seek for political reasons to intervene in the approaches taken by the not-for-profit delivery agent. For governments to constrain the administrative freedom of contracted organisations, and for public services to micro-manage their operations, spells death to social innovation.

There is a third variation of mission creep. This is when a government, appropriately seeking best value-for-money in the purchase of services from a provider, devotes inadequate attention to the capacity of the tendering organisation to deliver - and when a not-for-profit organisation, enthused by the opportunity to expand its horizons, over-estimates its ability to scale up from a local to a regional or national body. In such circumstances both sides feel that collaborative governance has faltered. Not unusually, it's the clients (that is, the citizens) who bear the costs of failure.

The danger I see (and fear) is that in a world in which access to the levers of democratic power is palpably unequal, not-for-profit enterprises may find themselves being reduced to minor partners in contracted governance. Their wonderful strength - devising community based, socially innovative approaches to the delivery of public benefit - may be dissipated if their potential for critical insight and new approaches is undermined not by outraged opposition but by the welcoming embrace of governments. At worst, they come to resemble an arm of government.

Let me be clear. Now, as when I was a public servant, I am attracted to forms of government which are collaborative. In an era in which party political affiliation (and trade union membership) have declined, a robust and raucous squabble of community enterprises gives life to democratic process. In their influence on public policy, however, not-for-profit organisations need to be provocateurs as well as partners. Individually, and collectively, they need the inner strength of conviction that builds a civil society. They need to preserve the knowledge and belief that they can make their own futures without government funding and irrespective of government support. It would be a disappointment if, for the very best of reasons, the capacity of social enterprise to influence governance was lost. It would be a tragedy if contractualism stymied opportunities for collaboration.

It would be equally disheartening if the potential for partnership between the government and not-for-profit sector was lost. At its best, collaboration adds public value to the process of governance. It allows participants to learn alternative modes of behaviour and to explore new ways of doing things. It provides mutual benefit to participants, stimulates the development of an inter-agency or cross-organisational culture and helps create and manage knowledge.

Genuine collaboration in governance involves a recognition of interdependence across a network of institutional structures. It depends upon accepting mutuality of interest. It should not unthinkingly assume consensus. The parties will often come to the table with competing interests. Their different perspectives will only be resolved - indeed they will only properly be understood - by honest interaction and genuine negotiation. The entire process of seeking solutions needs to be iterative: not just reaching agreement on answers but jointly framing the questions and identifying the problems.

Through a process of integration, collaboration can bring a group of interested parties to mutually beneficial outcomes, sometimes in unexpected ways. I have been fortunate enough on occasion to be present at meetings during which collective deliberation has added creative value. It has fired imagination beyond the capacity of any single participant. When collaboration works, the whole can be greater than the sum of the parts. The process of governance is improved. The key to success is to appreciate these characteristics and seize the opportunities they provide. To build collaboration requires public services to recognise the disproportionate power that they wield and consciously modify their approaches to mitigate these imbalances.

A culture of collaboration between the state and the third sector is crucial to the creation of a shared power world. Building that represents a daunting task. Yet there are even more exciting possibilities on the governance horizon. Opportunities are emerging for citizens, as individuals or groups of shared interest, to influence significantly the form in which public support is provided to them.

At the Commonwealth level, for example, jobseekers are being offered increased flexibility in negotiating individualised Activity Agreements with their Job Network provider (which may well be a contracted not-for-profit organisation). Supported by a pool of funds called an Employment Pathway Fund, individual jobseekers are now given the opportunity to tailor a mix of vocational and non-vocational work experience, educational and training activities to help them secure employment.

Similarly, in examining how best to manage housing estates, the NSW Department of Housing has explored ways to increase tenant and community involvement through neighbourhood boards. Community renewal, as Gavin McCairns has noted, is dependent on building partnerships which involve residents in decision-making. While public services retain responsibility for ensuring appropriate accountability for the expenditure of public funds, they must also base relationships with community organisations on trust. The goal is not to ‘give power away' but to collaborate.

Perhaps the greatest progress in the area of individualised funding has occurred in Australia in the provision of government services to people with a disability. It poses complex and contentious issues, not only to the individuals who have the responsibility to determine their own services but to the community-based organisations who are often the chosen service providers.

The Victorian government, which has been a leader in the provision of individual support packages for disability services, makes it clear that recipients are able to choose and change service providers. Indeed, more radical reforms have been foreshadowed. While recipients of disability services can agree to have their funding go directly to a combination of service providers and financial intermediaries, there are also options (presently limited) for individuals to sign a deed of agreement directly to purchase the support they require. This presents challenges to not-for-profits, including those that might take the opportunity to move from being service ‘brokers' to financial intermediaries. One citizen's flexibility and choice is a community provider's risk and insecurity.

Yet, by promoting a market for disability services in which program users are treated as customers, while advocating social justice through the active participation of citizens, individualised funding can make its pitch to both ends of the political spectrum. It rejects the ‘one size fits all' approach to service delivery which, far too often, has served to turn not-for-profit providers into arms of government or extensions of public service bureaucracy in delivering programs to citizens.

As Charles Leadbeater has extolled, on the basis of UK experience, "personal budgets and self-directed services mobilise the intelligence of thousands of people to get better outcomes for themselves and more value for public money". The "self-directed services revolution", Leadbeater enthuses, offers a transformational approach to public service delivery. Yet to fulfil the revolutionary potential will require public servants committed to revolutionary intent, willing to share power with the communities and citizens that, through governments, they serve. It requires governments and their public services to comprehend that the power they wield has in effect been ceded to them by communities and individuals. This, at its heart, is the ‘contractual' basis of democracy.

The success or failure of collaboration lies not in the emerging network structures of governance nor even in the evolving systems by which influences are wielded. It calls for new forms of leadership behaviour, particularly on the part of the public servants who remain central to most discussions of public policy and administration. Instead of imposing agendas they need to negotiate them. Public servants are required who can stand in the shoes of those with whom they deal, can understand their individual perspectives or community interests and, by doing so, build trust. And it can be enhanced by a clear indication that public servants will on occasion be willing to champion the perspectives of the group or individual citizen - using their disproportionate power on behalf of collaborative decision making. Not-for-profits, who will equally have to learn to walk these new paths, will need to be recognised as full partners.

Let me conclude. Genuine collaboration will not come about simply as a result of evolving networks of democratic governance or the changing role of the state. It requires public servants who, with eyes wide open, can exert the qualities of leadership necessary to forsake the simplicity of control for the complexity of influence. More explicitly, they need to operate with the same distinction outside the traditionally narrow framework of government as they have done for so long within it.

Public-service leadership has always been premised on the ability to influence. The challenge now is to extend the capacity from government structures to governance networks. While it will not be an easy path to travel, the prospect is alluring.

This hospital and its precinct have been part of my life since I, together with my family, migrated here in 1961. Prince Henry/Prince of Wales hospitals were my father's place of work and the name John Beveridge is a consequence well known to me both as a colleague of my father's but also as a formidable force in this hospital and medicine in this city generally.

Now this place is where my wife works and where its neighbour and partner is the institution of the University of New South Wales at which with delight I spend a lot of time.

I have chosen as my topic today - philanthropy, can it grow and can it help us grow?

I chose it before the tumultous events on the credit and stock markets of recent times but I realise now that the choice of the topic was particularly prescient.

I should note that in this talk I will take a broad view of philanthropy, including within that term individual and charitable giving and also corporate social responsibility by corporations and employees generally.

Let me start by going back not to 1961 (although that's tempting!) but to 1998 (ten years ago) when I first got interested in the area of philanthropy.

At that time, in Australia we were just starting:-

• A boom period that lasted basically until the end of the last calendar year
• A period when baby boomers were turning 50 and asking the questions of what do I do next and what is the value of my life?
• Generation Y was beginning to grow up and in their teens asking their baby boomer parents embarassing questions about life, sustainability, etc;
• The difference between the rich and poor was starting to become very marked in Australia and
• With mobile phones and soon palm pilots, blackberries, Ipods, etc, the connectivity of people in a suburb or around the globe was starting to become clearly established.

In this context the lack of philanthropy was marked in Australia;-

• In 1997 the average donation of each individual in Australia was $172 per annum, this was tiny compared to the average in the USA which was at least eight times as much.
• Surprisingly though we were big donors of time with 373.6 million hours being donated in that year to volunteering etc.
• Corporates seldom talked of corporate social responsibility (CSR) indeed CSR then was a reference to a sugar company and nothing more.
• Something was amiss - clearly we were a generous nation but there was not much in the way of monetary donations to show for it.

Many theories abounded for why the abovementioned conflict existed in 1998. Two of which may be close to the mark.

First, our rich at that time had made money on paper but may not have had a lot of cash to show for it. Their fortunes on the whole were tied up in real estate or gold and resource mines and both were yet to produce great cash flows. This could be compared with the fortunes in the United States which came much earlier than the fortunes in Australia and which came from the sale of oil, manufactured products and indeed boot-legging! All cash flow businesses.

The second reason advanced is that each of us had been brought up with an expectation that the governmnet in Australia would look after the homeless, pay for hospitals etc, and if they didn't do it (which was common) we would complain but do little about it.

Looking at the tax act that applied in 1998 provides enormous evidence for the latter of the two theories advanced above. Who would believe that in 1998 (only 10 years ago):-

• No tax deduction was available to a donor who gave a gift that was not cash to a charity - in fact, in many circumstances, that donor could pay tax on making such a gift if the item he was giving had grown in value since the date he first acquired it.

• Despite no death duties, gifts of non cash assets to charities as part of someone's estate were subject to capital gains tax - tax was payable if you gave to charity but not if you gave it to your children.

• The tax deductibility of donations was only available in the year in which you gave the donation. Therefore, it was not surprising that charities seldom got any monies until June of each year when taxpayers could caluculate what tax deductibility they needed and give accordingly.

• Every hurdle was placed to stop individuals setting up charitable foundations. Indeed, there was a genuine skepticism that to do so was motivated by anything other than seeking to reduce a tax bill.

• No encouragement was given for individual employees to give money and indeed under the system that prevailed at that time, an employee giving a sum of money had to wait up to 18 months to get a refund of the tax deduction allowed to him as a result of making a kind donation.

In 1998, our large and small companies didn't really understand the importance of the not for profit sector and the work that it does. This sector, being the partners to corporates in their charitable ventures and includes of course, the operations of hospitals such as this one.

I might also point out that in 1998, only ten years ago, there were serious concerns that corporations who gave donations or got involved in their communitities were perhaps acting wrongly if they participated in this way. The questions being asked, is this for the benefit of the shareholders and shouldn't it be the shareholders who decide on their philanthropy rather than the company doing it for them?

Since my first consciousness of these issues, I am pleased to report that the game has changed. Lest you should assume that my consciousness and the change have anything to do with each other let me assure you that the growth of philanthropy has been a groundswell with many important players.

Undoubtedly, the principle reasons for the change over the last ten years are as follows: -

a. Prosperity - in good times, when people feel good, they can do amazing things. I am totally aware that they can also do some bad things but during this ten year period, people certainly changed their attitudes positively in relation to philanthropy;

b. The coming of a new generation with different wants, different requirements for their life and different social values, has been incredibly positive for philanthropy; and

c. The older generation, perhaps pushed on by the younger, have started to question whether hoarding monies purely for family is all one is here for and whether there is more to life than that.

Replicating these social changes since 1998, other things have occurred in this regard -

a. The tax laws have been changed to allow for non cash gifts to charities to be tax deductible; for bequests of non cash items to charities to be tax exempt; for tax deductions from giving to be able to be carried forward against taxable income in future tax periods. These moves have resulting in giving per person more than doubling in the seven years from 1997 to 2005, the last reliable set of numbers that I have.

b. Private philanthropic funds, the new animal which allows the establishment inexpensively of a foundation for giving to charitable funds, has been permitted and since the inception of these funds in 2001, 800 have been established with an estimated total combined value of $1.5 billion and in 2007 and they distributed $117 million to charities which are deductible gift recipients as defined in our law.

c. Added to this, employees during the ten year period have now been encouraged to give through new work place giving taxation rules which allow the instant tax deduction for gifts to designated charities.

All these are signifant but above all the mood has changed (be it as a result of awards for giving in the case of companies or just general approbation), philanthropy in the 2000s has got going in Australia. Evidence of this can be seen close to home, in relation to the success of the Children's Hospital Foundation and the monies gifted by the Lowy family and others to build the Lowy Cancer Research Facility just down the road from where we are sitting today. This building is to be the new home of the Children's Cancer Institute of Australia.

All this however, is history, and the question I have to explore today is two fold - can philanthropy grow further and can it help us to grow.

As to the first, times are bad and on the negative side -

a. The large fortunes we have seen grow in the last ten years have been cut and in some cases buried in mountains of debt - one would have to be a fool to believe this was a good environment for giving. Added to this is that clearly unemployment and personal economic hurt is growing and will continue to grow for some time. How can one possibly expect people to be philanthropic at times when so many of them are hurting. I have to mention here that it is ironic that in these times, one probably needs philanthropy the most - but I will return to this.

b. Corporations traditionally cut brand building and the less tangible parts of their expenditure in bad times. Corporate social responsibility is excellent at building brands and trust. It is also great at keeping and inspiring staff at times of full employment. If there is unemployment and there is a need to cut budgets, sadly there must be a tendency to cut expenditure on CSR.

c. The problems are and may continue to be so big that the discussion of philanthropy may be seen as of a second order - the main game going back to pre-1998 thinking, namely a dependence and need for governments to step in and do their bit.

d. Little has occured since 1998 to assist the not for profit sector in its governance. The laws have not been altered to give the sector an entity it can use tailored to its special needs. So most not for profits operate as companies limited by guarantee giving their directors large liability and potentially onerous reporting requirements. This could give rise to potential very public failures by some not for profit organisations in these difficult times.

But lest you should despair there is another side: -

a. If you look at history philanthropy has flourished often in bad times. Humans have their faults but many are good - in the great depression the big barons of industry in the early 30s (people you might have had difficulty justifying inviting to your home - their toughness and lack of social politeness being legendary) did not reduce their giving and indeed some like Henry Ford whose attitudes on so many things I despise took the opportunity to establish a foundation of enormous proportion to help prevent poverty and human suffering.

b. With our ageing population it is conceivable that the intergenerational disposition of wealth (granted perhaps somewhat diminished by falling house and share prices) will not all go to the next generation but may be applied in part to social need as many of the baby boomers realise that their moment has come to help.

c. Generation Y are becoming more and more important in business as we baby boomers grow old and tired and pass the reigns to Generation X. Generally, Y are an interesting generation. They talk of the environment but consume much if not more than we do. However I think their social conscience is more developed than those of previous generations and I think they want more in their lives. Hence they will influence the continuity of their parents philanthropy and indeed insist upon the companies they work for and buy from -to do their part;

d. I am amazed at one effect of this downturn - many in their 40s have come to see me saying that the downturn has made them think - maybe they have enough and should do good works. One who has just taken a 70 per cent cut in salary to become the CEO of one of the not for profits I am involved in is a very good example. In his mid 40s he freely said that he can't let his life go by without achieving more than just making money. He has worked out what he needs to live on and he is particularly aiming for achievement in his new role. Others may find the opportunitities in business at high salaries more limited now and wish to reduce thier lifestyle but achieve more in the community.

e. We do have a better framework to keep philanthropy growing and I think there is an expectation now that we do that. As chairman of Coca Cola Amatil I could not conceive of us stopping the work we do in the community - whether it be breast cancer awareness thorugh the pink tops on our Mount Franklin bottles - cleaning Bali Beach or using light weight bottles as they are more environmentally friendly, our management like others know the importance of it and how important it is also to our consumers and what is expected of us.

f. Partnering between the not for profit sector and the corporate sector has now become quite well developed and I believe in many sectors it has developed a momentum of its own. Eg: in the area of the environment.

g. The intervention of government into banking etc must have some effect and it does not take a lot to hypothese that one is a better citizen more deserving of government contracts, guarantees, bailouts etc, if one does one's bit and the corollary of that must also be true.

I should add here the government in the United Kingdom legislated two years ago to enshrine responsibility on directors of companies to have regard for the interests of all stakeholders including employees, suppliers, shareholders, the community generally in the decisions that the directors make. I am not in favour of such an approach believing that regulation in this area will reduce a genuine desire to help and lead to a black letter law approach (ie: an attitude that 'what is the minimum the law allows me to get away with'). I would prefer a moral motivation, less based on law and much more upon what is right.

h. Finally on the good side we have groups such as the Centre for Social Impact under Professor Peter Shergold at the University of New South Wales (next door) and, together with his partners at the University of Melbourne and Swinburne College, now formally teaching and providing research in the area of philanthropy and sharing with all of us how these can be done efficiently and correctly. It is amazing to me that it has taken so long to see such a group established and in my view it will have a good effect.

My betting is that philanthropy will continue in the short term. It may not massively grow and certainly may refocus more towards welfare etc, but in time through bequests, foundations and generally, giving will take us to the next stage.

And so I come to the final part of the topic I have chosen - can philanthropy help us grow?

Let me first dwell on 'us'.

The other day I walked through the Children's Hospital. The premises are much more basic than what I see and have in the corporate world but the spirit and feelings in those corridors is definitely superior. Perople were doing something for the world there and particularly for the young.

This feeling that I had as I walked through that building reminded me of a statement made by my late father, a brain surgeon in these environs. Referring to a very wealthy and powerful acquaintance of his when I asked what that person did, he inadvertently said "he is just a businessman". My father was not a prejudiced person but I think only now do I understand to what he was referring.

Philanthoropy and involvement in the community generally is an incredible tool to help those of us who are not like those of you who give of yourselves day in and day out to help the community. I think that in my life the true growth I have felt has come in the last ten years as my eyes open to what one can achieve in the community whether it be in medicine, the arts, education, welfare and so on.

The fact is that we in commerce in particular need involvement. Philanthropy and the like allow us to feel whole, to grow out of the narrow sphere of our business and to contribute and maybe, even more important, to feel that we have contributed.

So many of you here tonight give to the community through your jobs daily and don't need to prove to yourselves or to any of us that you contribute because you do. But without being impertinent, it is possible that philanthropy and involvement in the community can even provide growth in your situation. Narrowness is not the exclusive province of those who socially contribute little such as people like me in business. Involvement, be it financial or with time outside of one's comfort zone; in the arts or education or any of the areas I have referred to above, can produce enormous growth personally.

On a more general note it is trite to say that philanthropy can help us grow our activities.

• Faced with a revenue budget at the University of New South Wales which our Vice Chancellor always jokes is $20 million too little for whatever he wants to do (no matter how much revenue comes in) the University is now determining that new building projects must have a philanthropic component.

Without philanthropy we don't have the money to build but there is another reason. Unless we can inspire others to give to the project the project itself may not be articulated clearly enough to warrant its fruition. The Lowy Cancer Research Centre referred to above involved philanthropic dollars, university monies and government, state and federal, monies; this involvement made the venture strong, particularly also with the co-operation and resources of the Children's Cancer Institute of Australia as a partner.

• We are now working to do the same for a large centre of virology of St Vincent's Hospital, a new engineering building near Anzac Parade and, closer to home for many of you, the refurbishment of the Wallace Wurth Medical School.

Philanthropy has the ability to help us provide a focus - the wish of a donor to eradicate small pox made in the case of Bill and Melinda Gates will potentially see that occur. This - but for their insistence on that matter - may not have occurred.

One can't make light of the sadness and troubles that the economic turbulence of recent times has and will cause but there are so many reasons for optimism that one casualty will not be philanthropy in its wider sense. It should grow as its roots are cultivated by younger gardeners than I and it will and can provide growth both personal and insitutional for all of us.

Thank you.

In last year's address Wayne Cameron noted Neil's "quiet, genuine and competent manner". Neil was also effective. As the then Minister for Veterans' Affairs, Bruce Scott, noted at Neil's passing in January 2001, Neil had transformed the Department of Defence's Canteen Service from an "ailing organisation into a modern retailer". It was a considerable achievement.

A public servant by inclination, Neil was an accountant by profession. Committed to openness and transparency, he sought to ensure that all those in his workplace - and the wider community - understood the importance of accounting issues. I suspect that it was this enthusiasm that drove Neil to become the National President of CPA Australia. I have no doubt that it was partly through his influence that the organisation became a professional association that truly understands the public sector and the challenges it faces.

The two decades in which Neil worked as a public finance officer were a period of extraordinary change in Australia's public services. The elements of that transformation are well-known: the increased focus on outcomes rather than inputs, the emphasis on measuring the cost of achieving results, devolution of authority to individual agencies, and a more structured approach to performance management and organisational capability. These were central to Neil's working life. In New Zealand, Canada, the UK and the USA, in varying and distinctive ways, similar trends were evident.

Much of this is associated with the late 1980s and 1990s. Somewhat later, as the inherent costs of bureaucratic territoriality and jurisdictional demarcation became more obvious, there was greater focus on creating team-based approaches to ‘joined-up' government. In my five years as Secretary of the Department of the Prime Minister and Cabinet, I devoted a great deal of my time trying to build ‘whole-of-government' approaches to the development and implementation of public policy. I have to admit that, in spite of best endeavours, I enjoyed only limited success.

In this evening's lecture I want to focus on one fundamental aspect of public service reform, namely outsourcing; to explore the opportunities and threats that development has posed to not-for-profit organisations; and, finally, to bring these two elements together as reflections on collaboration, network governance and democratic participation.

As I have already indicated, many elements of administrative change in the last generation were focused on the organisational structures and workplace systems of the Australian Public Service. However, more significantly, and driven in part by the desire to benchmark public service capability and costs, the functions of public administration started to be placed outside public service. Government businesses were privatised or given the freedom to operate as commercialised enterprises. Many of the internal functions of public service - such as security, IT, payroll and catering - were bought from the private sector. Most dramatically, the Commonwealth government, like its State counterparts, created markets for public goods. The delivery of publicly-funded programs in areas such as labour market placement, skill training, provision of welfare, health and housing services and relationship counselling was outsourced. Services were contracted out through competitive tenders. At least to some extent program recipients were able to choose from a range of providers.

It is important to recognise the scale of the transformation. The Australian Public Service was the first institutional creation of Federation. It was built upon hierarchical coordination, strong supervisory controls and function specialisation. Those who worked within it, in marked contrast to the patronage and nepotism that epitomised nineteenth-century Whitehall, were recruited and promoted on merit (assessed by educational attainment, technical experience and displayed competence). They worked, from top to bottom, in a framework of clear rules - established in law, regulation, administrative guidelines or parliamentary convention - which limited individual discretion, provided impartiality and ensured answerability for decision-making and accountability for the use of public funds. It was a form of procedural governance which underpinned the ethos of public service and its capacity to serve successive governments with equal dedication. It provided not only high ethical standards but effectively protected citizens from the arbitrary exercise of executive authority. A distinctive feature was that public service was separated from the private realm of business and the non-profit activities of charities and benevolent institutions.

In the last 15 years, in the search for a higher performing, less hide-bound, more innovative public service these organisational foundations of the state have been rebuilt. The implementation of government authority, often wielded in the past by public service quasi-monopolies, has to a significant extent been transferred to a range of interdependent public, private and not-for-profit players. Citizens, on occasion, have taken on the role of co-producers and co-funders. Service delivery has become a chain of brokered exchange between intersecting authorities. The distinctive role of public service in the distribution of political power has been transformed.

In short, this has been a time of ‘government renewal, reinvention and restructuring'. Within a generation the distinctive role of public administration in developing and distributing the power of the State has been transformed. Bureaucracy remains a pejorative team but the nature of the organisation which Max Weber so famously characterised has been altered irrevocably. Public interest has been released from the privileged idea of public service. I was part of this transformation. I was, in the managerial lexicon of the 1990s, a ‘change agent'.

I was aware of, and sometimes espoused, the language of distinction that was used to convey the idea that the roles of principal and agent were being separated in public administration. I didn't mind the notion of ‘governing at a distance' being articulated either in functional terms (‘purchasing not providing') or metaphorical terms (‘steering not rowing'). I eschewed, however, the vague, poorly-conceived notion of ‘third party government' or ‘government by proxy', which failed to capture the reality that the state continued to direct policy and to create and manage the framework for its delivery.

I was rather less conscious that the reforms in which I was an active and generally willing participant were spawning a minor academic publishing industry around the them of ‘new public management'. (I can't help noting, in parentheses, just how dated much of this language already sounds.) Generally the view from the universities was critical and often hostile. The reforms, I belatedly discovered, were creating an enterprise state that was post-modern and post-bureaucratic; driven by managerialism, contractualism and corporatism; inspired by neoliberal ideology and (a distinctively Australian form of abuse) led by economically rational public servants. I was, I suppose, one of the leaders.

On balance, I thought the change process was a good thing, part of a more wide-ranging microeconomic reform agenda. I didn't think the Westminster traditions were under siege: rather I welcomed the removal of burdensome prescriptive controls that beset management of the Australian Public Service. I saw no significant threat to integrity. The formulation of public service values in legislation enhanced understanding of the complex relationships between assertiveness and responsiveness, responsibility and accountability, openness and confidentiality that govern the respective roles of Minister, Parliament and public servant. I was all in favour of getting the best value-for-money from taxpayer funds, whether through improved public service performance or outsourced delivery. I believed that cross-agency teams improved not only public policy but enjoyment of the workplace. If this was post-modern I was for it. It certainly sounded more youthful than the eponymous labels of ‘baby boomer' or ‘veteran'.

I was not, I should emphasise, uncritical. In private and public forums I expressed my dissatisfaction with treating those who receive government programs as customers. Driven by the best of motives - to improve commitment to service delivery - the private sector language dangerously confuses the nature of the public sector. Customers can choose whether to buy and from whom. Citizens (and I embrace residents in this term) have no such choice. They are being delivered responsibilities as well as rights: the services they receive as entitlements also impose obligations. Public services are not shopping malls.

I also became increasingly concerned that devolution of responsibilities from the centre of government may have gone too far. I had no doubt that the shift had enhanced the performance of individual agencies. My fear was that, embraced uncritically, it could reinforce administrative silos and increase costs. Public services can benefit from economies of scale, administrative as well as financial.

During the years in which I oversighted line agencies I gained considerable experience in contracting out the delivery of publicly-funded programs in indigenous affairs, employment, training and education. I recognised it was not without risk. I saw a danger that public servants might mistakenly believe they could outsource accountability or, worse, hide administrative failure behind a cloak of commercial-in-confident. I thought it was a good thing that the APS integrity network - particularly the Commonwealth Ombudsman and the Auditor-General - were given the powers to bring the same scrutiny to the behaviour of contractors (insofar as their activities related to the use of public funds) as to public servants.

Yet, with eyes wide open, I was committed to the benefits of strategic outsourcing. I do not, from the new perspective given to me by my role as CEO of the Centre for Social Impact, renege on those views. This lecture is not a mea culpa. I still think outsourced delivery has improved the cost-effectiveness of public programs. In particular, I remain strongly of the view that providing contracts to not-for-profit organisations has increased the efficiency with which public funds are directed to community need.

It has certainly been important to the economic viability and financial sustainability of not-for-profit organisations. While economic statistics should be treated warily, not least because of the disparate groups within the not-for-profit sector, there is no doubt from the most recent ABS data that the driver of growth in the last decade has been government revenue. ABS figures suggest that between 1995-96 and 2006-07 government funding rose by 136%, more than two-thirds of which derived not from grants but from fee-for-service contracts or quasi-voucher arrangements. Only half that amount came from growth in sales revenue. The charities that are surveyed annually by Givewell Research have seen their financial dependence on government funding rise from around 40% to 50% over the same period.

My growing sense of disillusion with outsourcing is fuelled by something entirely different. My concern is that, through lack of vision and temerity, the potential benefits to governments of working with community-based organisations remain largely unfulfilled.

For now, I ask you to hold that thought. It will be central to my conclusion. Before then, I want to examine the changing nature of public administration from the perspective of not-for-profit enterprises. It is in articulating the challenges they face that a different, more exciting future can be envisaged, marked by shared power and collaborative leadership.

In preparing for this oration I went back and looked at some of the key documents that formed (or perhaps reflected) government ambitions for contracting in the mid-1990s. I examined reports from the Productivity Commission, the Industry Commission, the National Commission of Audit and the Administrative Review Council. Two aspects stand out. First, the extent to which the rationale for outsourcing was couched almost exclusively in terms of increasing the administrative efficiency and cost-effectiveness with which programs were delivered. Quality and service were generally mentioned en passant and rarely elaborated. Second, the degree to which the focus was on private providers, with relatively little attention being given to the growing role of not-for-profit institutions or, as they were often described at the time, Community Social Welfare Organisations. Between these two omissions lies a world of lost opportunities.

With the wisdom of hindsight, it is not surprising that not-for-profit institutions have proved so successful at moving from submissions-based funding through government grants (to support their own endeavours) to contracts (to deliver government programs). It is not generally appreciated that Australian charities have always had a strong commercial instinct and mutual associations were born of working-class self-help. Compared to Western European countries, Australian not-for-profits have been far less dependent on private philanthropy and much more reliant on income from fees, membership dues and charges. Long before the emergence of concepts of social enterprise, Australian not-for-profits exhibited a strong taste for business venturing, focusing on ways of building sales revenue rather than depending on donations.

Paradoxically, the increased dependence of many community organisations on government funding bears testimony to their commercial nous and willingness to pursue income opportunities. In a competitive market many have prospered on the back of their performance, winning and retaining government business.

The success of not-for-profit organisations in securing government contracts over the last 15 years has not been universally welcomed. Diverse concerns have periodically been expressed about the role of not-for-profits as contractors. Some have been economic: the view that not-for-profits have less incentive to be efficient than private sector providers because cost savings do not accrue as profits, management is less preoccupied with money-making and that in consequence they will be more risk averse. This has not been a view shared by their private sector, profit-maximising competitors, some of whom have argued, before a number of government inquiries, that the beneficial tax status of charities creates unfair competition for them.

Other concerns have been cultural: the perceived danger, for example, that religious charities might combine proselytising with the delivery of social services. A variant, played out in the media from time to time, is that church-based organisations might restrict their clientele to, or employ only staff of, their own faith - behaviours which are excluded both by law and contract.

Even the governments who contracted out their business, and the public servants who administered the tenders, were at times wary of the success of not-for-profit ventures. There has been a generally unspoken fear that community-based organisations might quietly subvert those aspects of policy delivery with which they disagreed. Such concerns are not unjustified. Today, half of the business of Job Network is undertaken by not-for-profits. Yet it has often proved difficult for government to persuade them to participate in the process of breaching welfare recipients who failed to meet their job-seeker obligations, particularly when guidelines were toughened in line with welfare-to-work requirements.

In truth, however, the challenges for not-for-profits have been far greater than for governments. Indeed it is the argued view of my colleague at the Centre for Social Impact, Prof. Mark Lyons, writing in 2003, that "most of the community are unhappy about the way relations between the sector and governments have changed over the past decade or so". Even as they have become increasingly successful in winning contracts for service delivery in a widening array of areas, so their fears have risen. As the flow of public funds has grown so have the doubts. To some observers the relationship is portrayed as community organisations entering ‘into the lion's den': to others as ‘supping with the devil'. It is as if, unwittingly, the not-for-profits have entered into a Faustian bargain with governments that has given them unanticipated riches but taken their very soul, seducing them by the pieces of silver on offer.

From the particular perspective of the third sector I see at least five key challenges for social enterprises entering into contractual relationships with governments. First, the voice of advocacy may be muted by a need not to criticise overtly the policies of those governments for whom they deliver services. Either explicitly by contract or implicitly by perception, a community-based organisation may feel a need to constrain its espousal of the very views that sustain its endeavours. This is probably the fear that I hear most commonly expressed by not-for-profit leaders. Dissent might be silenced and community voices gagged. In truth, I suspect, it is the danger that might most easily be addressed.

I sense that the relationship that develops between a public sector and its major service providers is not unlike that between a bank and its largest borrowers (or, perhaps more apposite to current circumstances, between governments and a nation's banks). There is a mutual interest in preserving the partnership. A government does not wish to risk an organisation responsible for delivering its programs in a large way from handing back its contract, any more than an organisation heavily dependent on public funds wants to see its contract terminated.

My experience tells me that the larger a provider the greater its capacity to secure access to governments to lobby its cause. At least behind closed doors its importance to government enables it to wield more influence. As Gemma Edgar has noted, the "NGO sector is in a position of considerable power because it is a provider of so many essential services to the community".

Certainly governments need publicly to affirm to not-for-profit groups that the receipt of a grant, or award of a contract, will not mute their capacity to give voice to the community interests they represent. That is why some form of compact or charter of civil engagement needs to underpin the relationship of governments with the third sector. The framework of reciprocity needs to be clear and transparent. I suspect, however, that this will not get to the heart of the problem which is that the larger, more successful not-for-profits, wielding increasing influence with governments, will effectively crowd out and marginalise smaller organisations that fail to win contracts. One does not have to be engaged in the community sector for long before the tensions between the winners and losers of outsourcing become evident.

Second, the costs of regulatory scrutiny may burden the administrative capacity of social enterprises. I have no doubt that organisations that receive public funds and deliver public programs should expect their operations to be transparent and their finances to be audited. Accountability must apply to the expenditure of public funds no matter the vehicle of delivery chosen. Indeed, reporting requirements may significantly benefit not-for-profit organisations by forcing them to identify more fully their real costs of doing business.

There are, however, two ever-present dangers. The first is that the contractual conditions and their monitoring are made unnecessarily burdensome by a risk-averse public service. My experience has been that too often bureaucrats behave as if they are managing a contract rather than a relationship. Conditional requirements cumulate over time. For a national organisation receiving funds from different tiers of government the administrative costs of federalism can seem heavy.

The second danger is that not-for-profit organisations think that the reporting requirements are an impost - unnecessary evils imposed from outside - that possess no  intrinsic value. Rather than seeing administrative rigour as a means to make best use of scarce resources for community benefit, many employees in the third sector come to view the assessment of capability and conduct as a regulatory weight of no intrinsic value. Performance management comes to be perceived as a response to external accountability rather than a driver of mission.

Third, social enterprises which seek government funding may be subject to mission creep. This is a danger that is more subtle and for that very reason more pernicious. The goals that have attracted and sustained support for a community-based organisation - the inspiring vision that brings an organisation voluntary endeavour and philanthropic donations - may be progressively transformed by the desire to secure government funding. Sometimes the organisation will be persuaded to widen its ambit by the availability of funds. The broadened goals will probably still have social value but nevertheless have the effect of diverting an organisation's effort away from its original core mission. Sometimes the organisation will be tempted to expand its activities beyond its capability, accentuating risk of failure. Often the drift occurs without being properly recognised and, too frequently, in the absence of strategic discussion at the Board level. The ultimate danger, as Bronwen Dalton and John Casey have recently argued, is that not-for-profits enter a ‘moral minefield' and come to be "seen by the public as more of a business than a social agency".

Fourth, the relationship between governments and the third sector is epitomised by an asymmetry of power. The worthy goal of collaborative government is made more difficult by the fact that governments (and the public services which work to them) have far greater power than the community-based enterprises with whom they contract. It is not just that governments are generally able to harness greater resources of skill and expertise on a continued basis than the organisations with whom they deal: more profoundly, it is the knowledge that governments are far more likely to be able to exercise the power of decision.

The symptomatic feature of this unequal relationship is reflected in the form of contracting. The organisations that win contracts to deliver government services rarely have the capacity or opportunity to negotiate the policies (or even the administrative guidelines) which determine the form of the programs that they are paid to deliver.

Fifth, and perhaps the greatest danger of all, is that social enterprises may come to look first to governments for the wherewithal to deliver their goals. Ironically,  organisations founded on community enterprise may start to perceive their future and count their success in terms of winning government funding. To a significant extent, not-for-profit organisations have been able to give hope and direction to welfare-dependent communities that feel marginalised, socially excluded and helpless. It would be a tragedy if those organisations began to place limits on their social entrepreneurship by their own increasing dependence on the public purse. Social innovation is born of creativity, imagination and risk - not qualities that are generally associated with the conditions of government funding.

Let me now attempt that which I promised so cavalierly earlier in my address and which I now regret: namely, to weave these two distinctive perspectives - that of public administration and not-for-profit management - together. My challenge is not only to elaborate the lost opportunities and unfulfilled vision but, with cautious optimism, to suggest that they can be overcome. It will require governments to set clearer and bolder goals. It will need public servants who can grasp the collaborative leadership necessary to manage human relations rather than contracts. It will mean not-for-profit enterprises being given the freedom to be socially entrepreneurial in the delivery of government services and having the capacity and capability to enjoy that liberation. To the extent that these ambitions can be fulfilled then so do the prospects of building a socially inclusive and sustainable society.

The heart of the problem lies in the extent to which governments continue to articulate the benefits of outsourcing in terms of cost effectiveness and, worse, the unstated assumption that this means doing what public servants previously did but less expensively. The result is that public servants, working in an environment of fierce political contest, and seeking to minimise risk to the governments they serve, involve themselves in the micromanagement of the outsourced deliverer.

On this my views haven't changed since April 2001, when I engaged in public debate with Professor Mark Consadine on the performance of Job Network. Mark argued, quite reasonably, that given public money was being spent on public clients, outsiders should be able to look into ‘the black box' to examine the details of how contractors operated. I responded, quite forcefully, that this was unnecessary: given that public funds were paid on the basis of employment outcomes, the manner in which different providers used their inputs should be a matter for them.

While it is important that public programs, however delivered, are subject to audit scrutiny, probity monitoring, ethical testing and periodic evaluation, contract requirements born of accountability should not be framed so as to constrain the managerial decisions of competing providers. Although my position hasn't altered, my motivation has. I now more fully appreciate that the prime benefit of outcomes-based government contracts is not cost-saving, nor even service quality, but the ability actively to encourage different approaches to the delivery of public services.

Governments should identify the objectives being sought, ensure adequate monitoring of outcomes and evaluate results. They can determine, through the goals set, the extent of discretion allowed to providers. Having done so, they should be careful not to allow their public services to intervene in the way the outcomes are achieved. Otherwise, as Myles McGregor- Lowndes and Matthew Turnour have pointed out, the actual relationship of not-for-profit organisations to governments is closer to an independent contractor than a partner.

Governments too often lack the courage of their outsourcing convictions. The prime advantage of contracting not-for-profit organisations to deliver government services should be the opportunity to stimulate social innovation. It's not just that community-based organisations can produce outcomes more cost-effectively than public service agencies but that, collectively, they can trial new, more service-oriented methods of delivery at the community level. Yet governments are often persuaded - by too great an abundance of caution, too narrow a vision or too much fear of public criticism - to prescribe the processes by which outcomes are achieved. Why, one asks, does a government outsource its administration if it acts over time to cast the provider into a shadow of the public service agency it replaced?

Governments need the wisdom to promote outsourcing as a means of generating social innovation. This requires fortitude because, in extolling the virtue of diversity, and in promoting public entrepreneurship, one recognises that not all endeavours will be successful. Indeed it is an inherent characteristic of innovation that it is preceded by trial and error. Unfortunately the virtue of failure in the quest for success is hard to acknowledge in politics.

The opportunity for social innovation is not the only major benefit that can come from outsourcing. So, too, can new forms of ‘horizontal' governance in which a wider range of players can be active participants in the development and delivery of government policy. To many critics the privatisation, commercialisation and contracting out of government has created a ‘hollow state' which has turned itself into a weak imitation and auxiliary of the market system. I see it differently.

From my perspective, the networking of governance has the potential to involve community-based organisations and individual citizens in decision-making. Far from the state losing power, increased mutual dependence of governments, public services and social enterprises can enhance democratic participation. The inclusion of not-for-profits in government program delivery can strengthen civil society by decentralising service provision and encouraging community ownership of local problems. Unfortunately that possibility has neither been fully recognised nor realised.

I think I oversighted the Job Network competently. So have my successors. It's delivered significantly better value-for-money in terms of placing people into employment than the Commonwealth Employment Service that preceded it. It has proved effective in allowing successive Commonwealth governments to create and manage a market to meet their policy directions. Yet Jenny Stewart was on the money when she argued that it was only a network from the position of the department which  administered it. The department is at the hub of a large number of competing players who do not collaborate with each other regularly at a substantive level. It remains, at this stage, a ‘managed market' moderated by various consortia, partnerships and an industry association.

This achievement needs to be built upon. It is possible to envisage an evolution to more organic networks of governance in which stakeholders, bound by congruence of public policy interests and common values, engage in mutually beneficial exchange. This would enhance democratic political process.

Not-for-profit organisations need to play a critical role in that transformation. The inclusion of notfor-profit organisations in government service delivery can strengthen civil society by empowering non-government actors who bring different modes of behaviour to the relationship. Whilst their procedural governance and organisational structures may look increasingly similar to for-profit contractors, studies have shown that not-for-profits remain distinguished by much greater commitment to networking. They are more willing to seek inter-organisational collaboration, partnership or co-production. They are more disposed to brokerage and negotiation. A characteristic of successful community-based enterprises is their capacity to look outward and build alliances for advocacy.

These are qualities from which governments can benefit and the private sector learn. I was at a meeting of the Telstra Foundation last week when a group of the company's senior executives and not-for-profit leaders discussed their ‘mentoring' relationship under the Community Leadership Program. Andrew Maiden, Telstra's Director of Media Communications, talked with insight of what he had gained from the relationship. It was apparent that he had learned new skills in advocacy, building consensus, exerting power through influence and negotiation through engagement. Collaboration between the two sectors, it is clear, can enhance the leadership capability of both in a beneficial manner - and can provide a framework of engagement wide enough to embrace governments. Such networks of governance can, "bring to the table a diversity of lived experience and therefore a diversity of ‘evidence'" which can generate innovation in the form of new thinking and new solutions.

The challenge is for governments to ensure that the not-for-profit organisations that implement their services are provided with a genuine opportunity to influence the policy, and to negotiate the guidelines, under which the program is delivered. Institutional engagement should not assume mutuality of interest. It should not naively assume consensus. The parties will often come to the table with competing viewpoints. Their different perspectives will only be resolved - indeed they will only properly be understood - by interaction and negotiation.

It requires from governments a comprehension that the instrumentalist perception of individual social enterprises as a cheap way of delivering government services is inadequate. They are not just a paid extension of government. Instead, there needs to be recognition, in actions as well as words, of the democratic value of the third sector and the wider social economy in giving voice to community and substance to democratic participation.

This requires a transformed relationship between government and communities, a partnership premised upon power-sharing. Far from being constrained, not-for-profits need to be encouraged to develop new approaches and have their ownership and intellectual property acknowledged. They need to agree with governments a common understanding of public policy objectives and shared obligations and, on that basis, be given the degree of flexibility necessary to innovate.

The success or failure of collaboration lies not in the emerging network structures of governance or even in the evolving systems by which influences are wielded. It requires new forms of leadership behaviour, particularly on the part of the public servants who remain central to most discussions of public policy and administration. Instead of imposing agendas it needs to negotiate them. It demands public servants who can stand in the shoes of those with whom they deal, can understand their particular perspectives and interests and, by doing so, build trust. And it can be enhanced by a clear indication that public servants will champion the collective decisions of the group - using their disproportionate power on behalf of the collaborative venture.

These are not easy steps. Nor are they necessarily sufficient. For governments there is an opportunity not just to empower community organisations but to move further and allow individual citizens to design or tailor services that they need to their own ambitions and circumstance. There is a need to recognise that social benefit can be sought by enterprises that are not defined by their aversion to profit. Nevertheless, the opportunities are as great as obstacles. The challenge for the future is whether they can be seized.