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I admire the work of both the Institute of Public Policy Research and Pinnacle Housing Association, so it pains me greatly that I must shout "no!" to the suggestion by Paul Maltby of the former, and Ian Keys of the latter, that the housing association not-for-profit model provides lessons for the rest of the public sector (HT 21 February, page 23).

The main lessons I think the old hands of the RSL sector could teach the public services are about the myths and shortcomings of the not-for-profit model when it comes to running complex businesses.

Applying the RSL model to public services in general would be a huge step backwards, weakening and blurring the important distinctions between the public and private sectors' roles.

RSLs have risen to a variety of challenges thrown at them by all governments: inner-city refurbishment, rural housing, low-cost home ownership, stock transfer, key worker housing, private sector leasing and neighbourhood management. The RSL governance model has grown to embrace committed individuals, stakeholder interest groups and cooperators. Private investors have so far been willing to pour £20bn into the sector. But only a small part of their success is down to the constitutional structure RSLs have been forced to adopt through a combination of history and necessity. That success has been more in spite of their structures than because of it.

Government policy says the public sector, as procurer of public services, should be more concerned with the type and quality of services than with owning of assets or prescribing methods. But despite what Maltby and Keys say, "public service organisations" – which I take to mean the bodies that deliver the services – really do have to worry about where their capital finance is coming from. This is, of course, the case with RSLs.

Within the wider public sector, we have a variety of joint-venture bodies: generally speaking companies with share capital (in other words, for profit), some with the public sector as part owner, but most wholly private-sector. By using the traditional share capital company model, risk and reward can be closely matched. As many RSLs know, one of the big weaknesses of the not-for-profit model, outside the small number of housing cooperatives, is the weak link between risk and reward.

The main lessons the RSL sector could teach the public sector are about the myths of the not-for-profit model when it comes to running complex businesses

The potential drawbacks of involving profit-driven bodies in public services can be, and are, addressed by proper contracts including, for example, performance-related payment.

The benefit of involving profit-makers – injecting massive additional capital and complementary expertise, and sharing risk – can most efficiently be achieved by linking the possible rewards of holding equity with the potential loss of that equity. Of course, there will always be public services that the private sector cannot or should not provide. But where the private sector is involved, incentives and disincentives need to have commercial bite.

Our public services need massive investment, and anything that confuses or over-complicates how they are provided will reduce the amount and impact of that investment. The kind of private finance initiative and public-private partnership models typically used nowadays bind in the private sector in ways that reward but also hurt. Although equity is a relatively small proportion of the funding for most PFI schemes, it is still significant cash for the private sector to find and to lose. And unexpected problems on some PFI and PPP schemes have already eaten into private-sector equity in a big way, a sanction that is lost with the not-for-profit model. Yes, one can replicate these kind of incentives in part within a not-for-profit body. But why glue a trunk on a donkey and call it an elephant?

Within social housing, various initiatives will push the sector towards developing profit-distributing structures. Those structures will need to satisfy minimum standards of quality and accountability, and also entice the private sector into taking more risk than in the past.

Some large RSLs are looking at Plc structures; John Prescott's expansion of the role of RSLs into new build for sale will also be encouraging. Expanding the Housing Revenue Account PFI programme into new build, and the birth of the pathfinder refurbishment programme, will also show us the way to greater and more effective private sector participation.