WILL ROYAL MAIL be New Labour’s political and managerial watershed? There could hardly be a clearer test case of what, if anything, 12 years of bruising encounters with public-sector reform have taught it.

No one doubts that the Mail badly needs an overhaul. In the 16 years since the then Post Office described itself to The Guardian as ‘the best in the world’ (I remember: I wrote the story), it has gone steadily backwards. Shorn of a vision, denied the commercial freedom of rivals and in the view of many ill-served by the regulator, RM has long been lost in strategic limbo.

Some abuse was self-inflicted: remember the beyond-caricature Consignia episode? Or the Orwellian ‘Negative External Financing Limit’ that saw the Treasury cream off pounds 2.4bn of its profits, or the government-imposed 13-year pension holiday that has landed it with a pounds 6.8bn pension deficit that has become a rod to beat it with. Not surprisingly, industrial relations, always challenging, are testy.

But RM is far from a basket case. Postal performance is relatively good and costs relatively low. Even after a 40% shrink age, it has a network of 12,000 outlets under the universal delivery obligation, it is a link to every address in Britain.

There is one other intangible but crucial factor. The Royal Mail is a national treasure. Like the NHS, it exerts a hold on public affection that is, objectively, only partly justified. But whatever the ‘reality’ – as Gordon Brown knows from his duffing up by Joanna Lumley – national treasure status raises the underlying stakes tenfold. No disrespect to Lumley, but RM is higher-profile than the Ghurkas. New Labour simply must get it right.

This is the intriguing backdrop to today’s clash of two opposing models of management modernisation. The official one, part-privatisation, is directly in the there-is-no-alternative, market-based line that has been the default setting since Labour came to power. The assumptions are entirely economic: to use management writer Alistair Mant’s phrase, the ‘business worldview’ has been so thoroughly ingested by ministers and civil servants that no other is entertained. Business is the frame of reference ergo, the private sector must do it better.

Meanwhile, the left-leaning think-tank Compass has put forward a proposal for a not-for-profit RM, borrowing from the likes of Network Rail and Welsh Water, with the aim of renewing and strengthening public-sector values. It wants a ‘dynamic and innovative pub lic service’ that enlists both workforce, including managers and trade unions, and public in the renewal effort. The measure is the maximisation of public benefit, rather than profit.

Wishful thinking? Not a bit, says Hilary Wainwright, who uses that formulation in another Compass publication, Public sector reform… but not as we know it!. It recounts an example of how it has been done. The template is not exact, since the case Wainwright reports is the modernisation (or ‘transformation’, as it prefers to call it) of Newcastle council’s IT services with 650 staff and a budget of pounds 25m, not a national enterprise. Nevertheless, the issues faced – basically the need to rejuvenate an underinvested, traditionally run, not very engaged public service – were fundamentally the same, right down to the initial assumption that there was no alternative to privatisation.

There are many interesting things about the Newcastle experience. One is the critical role of the union (Unison) in articulating the determination of staff to keep their own destiny in their own hands. It also maintained the ‘democratic infrastructure’ which ensured that, once arrived at, tough decisions would stick and is now a strong champion of spreading the model elsewhere.

And why would it not be? Because perhaps the most striking finding is that while the privatisation model has no language to address the public-service concerns of the Compass proposals – it talks past them, as if they didn’t exist – the publicly generated reform did that and more. In Newcastle’s case, the self-funding deal has saved a net pounds 28.5m after investment of pounds 20m, a result that if reproduced at other councils could save pounds 3.5bn nationally, as well as improving public services by leaps and bounds.

Translating all this to RM will not be easy, but, as in Newcastle, everyone, including the postal workers’ union, is aware it’s crunch time the only question is what kind of crunch. That applies to ministers too, for whom the choice could not be sharper. Do they continue to treat public service as an economic burden to be minimised by privatisation and outsourcing – the last gasp of the exhausted old policies – or switch to a less reductive management accounting that has a chance of mining some real national treasure? Forward, or back?